In an era of ceaseless demands for billions more in mental health funding, a critical question remains unanswered: Where will this money come from, and what concrete outcomes will it achieve?
In recent years, mental health has emerged as a focal point in U.S. healthcare discussions, driven by heightened awareness, the lingering effects of the COVID-19 pandemic, and a growing recognition of its economic toll. Mental health spending has skyrocketed, outpacing many other areas of medicine. Yet, this increase comes with complexities: outcomes are often intangible and hard to quantify, calls for even more mental health funding persist, and systemic pressures are making the model untenable for hospitals. As the latest federal budget bill introduces cuts to key funding sources, the irony becomes clear—increased investment in mental health may inadvertently lead to reduced access to mental health treatment, particularly in vulnerable rural areas.
These reductions are part of broader federal budget cuts and proposed cuts that impact mental health and behavioral health programs nationwide. The cessation of pandemic-era funds and proposed cuts to mandatory spending, such as Medicaid, are key factors in mental health funding reductions. The proposed budget for 2026 includes further proposed cuts to federal funding for mental health services administration and related agencies, raising concerns about the future of federal support for these essential services. The Department of Justice (DOJ) has slashed $88 million in grant awards for substance abuse treatment and mental health services, further compounding the challenges faced by these programs. Additionally, the DOJ has canceled grants initially valued at $820 million across 550 organizations, affecting violence prevention and victims’ services.
Ongoing restructuring of services administration—including agencies like the Health Services Administration SAMHSA and the Health Resources and Services Administration (HRSA)—is impacting health resources and access to care, with the potential dissolution or consolidation of the Mental Health Services Administration under consideration. The Biden administration’s approach to federal support for mental health has shaped recent funding decisions, but federal cuts and proposed cuts continue to challenge the stability of these programs. The proposed merger of SAMHSA and HRSA includes a $1 billion cut to critical programs that serve millions of Americans with mental health and substance use disorders. As part of these reforms, the creation of the Administration for a Healthy America (AHA) is being discussed to integrate and enhance health and human services, reflecting a shift in how the nation organizes its health system for a healthier America. The restructuring of federal health agencies is expected to eliminate 20,000 federal employees, further complicating the delivery of essential services.
The Rapid Rise in Mental Health Spending and Funding
U.S. healthcare expenditures reached $4.9 trillion in 2023, marking a 7.5% increase from the previous year. Within this, behavioral health spending has climbed dramatically, fueled by rising demand for counseling, therapy, and psychiatric services. From March 2020 to August 2022 alone, spending on mental health services among those with employer-provided insurance surged by 53%. Insurance coverage—including health insurance, commercial insurance, and marketplace plans—plays a critical role in determining access to mental health services, with disparities in coverage often limiting treatment options for many individuals. Medicaid is the single largest payer of mental health and substance use services in the United States, making its role pivotal in ensuring access to care. Changes in medicaid coverage and medicaid spending have a direct impact on medicaid beneficiaries, a large majority of whom rely on behavioral health services for essential care. According to the latest projections from a June 2025 Health Affairs report, national health spending increased by 8.2% in 2024, reaching $5.3 trillion, and is expected to grow by 7.1% in 2025 to $5.6 trillion. Projections indicate the mental health market will reach $11.82 billion in revenue by 2025, with modest but steady growth thereafter. As of July 2025, PwC reports that behavioral health spending is climbing dramatically, partly due to increased utilization and policy changes. These trends have significant implications for population health, as disparities in insurance coverage and shifts in medicaid policies can exacerbate mental health outcomes and widen gaps in care at the community level.
This growth stands in stark contrast to other medical fields. While overall healthcare spending has risen, behavioral health has outpaced areas like primary care or chronic disease management in terms of percentage increases. For instance, the share of adults receiving mental health counseling jumped from 10% in 2019 to 13% in 2022, reflecting a broader societal shift. Meanwhile, the economic burden of undertreated mental health disorders exceeds $290 billion annually, underscoring the urgency but also the scale of investment required in mental health funding. In a May 2025 McKinsey report, the U.S. wellness market, including mental health, is estimated at over $500 billion annually, growing 4-5% each year. The NIMH’s FY 2025 President’s Budget request, as of August 2025, stands at $2.5 billion, including funding from the 21st Century Cures Act.
Elusive Results and Persistent Calls for More Mental Health Funding
Despite these investments, mental health care lacks the “easy wins” seen in other fields, such as surgical interventions or pharmaceutical breakthroughs with measurable outcomes. Mental health conditions are often chronic, influenced by social determinants, and progress can be subjective or slow to manifest. Early intervention is crucial in addressing mental health problems before they escalate, helping to prevent more severe outcomes and reduce the need for crisis responses. Among adults ages 19-64 covered by Medicaid, 35% have a mental illness and 24% have a substance use disorder. Individuals with serious mental illnesses often face the greatest barriers to care and would benefit most from targeted funding and outcome-based approaches. Low-income individuals, rural communities, and children often face disproportionate impacts from cuts in mental health funding. Children are at risk of experiencing irreversible psychological effects and impacts on their educational and social development due to cuts in mental health services. The U.S. has made gains in awareness and some preventive measures, but systemic failures persist, including inadequate integration with primary care and ongoing disparities in treatment efficacy.
Beyond Mere Spending: Embracing a Results-Based Approach to Mental Health Funding
Throwing more money at mental health challenges is not a panacea; mental health spending must be tied to measurable results to ensure sustainability and efficacy in mental health services. Without a focus on outcomes—such as reduced wait times, improved patient satisfaction, or lower readmission rates—increased mental health funding risks perpetuating inefficiencies rather than resolving them. This results-oriented model is best achieved through strategic partnerships, particularly with external staffing firms that prioritize shared goals over mere transactional services. These partnerships can increase access to specialized services for underserved populations, ensuring that targeted mental health and substance use treatment programs reach those who need them most. Stronger funding for community mental health centers is essential, as they often heavily depend on federal and state grants for survival. Aligning funding with measurable outcomes also helps save money by reducing inefficiencies and focusing resources where they are most needed.
However, not all firms are created equal; success hinges on alignment between the facility’s patient-centered objectives and the partner’s operational priorities. Discrepancies often emerge when facilities emphasize quality care and outcomes, while some staffing firms chase revenue metrics, leading to “harmony lost” in partnerships. FasPsych stands out by aligning with hospital goals through flexible, on-demand staffing that addresses key priorities like improving patient access, reducing costs, ensuring compliance, and supporting growth. For instance, their approach minimizes overhead with models yielding a $4 ROI per $1 invested, while fostering long-term sustainability via evidence-based practices and adaptability to regulatory changes. By conducting regular reviews and engaging in open conversations, facilities can identify misalignments early and transition to aligned partners like FasPsych, ensuring that mental health funding translates into tangible results rather than wasted expenditure.
The Latest Budget Bill: A Tipping Point for Mental Health Funding Unsustainability
For hospitals, this is unsustainable. Already grappling with rising operational costs, facilities now face reduced reimbursements from a major payer. The bill provides some targeted funding, such as $200 million for state systems development in FY 2026, but critics argue it’s insufficient to offset the broader reductions. Proposed federal budget cuts will eliminate spending on mental health and substance use block grants, exacerbating the behavioral health crisis. Medicaid is the largest payer for mental health and substance use disorder services in the U.S., making cuts to it particularly detrimental during the ongoing behavioral health crisis. The federal-state Medicaid program accounts for one quarter of all U.S. spending on mental health and substance use disorder treatment services. Cuts to Medicaid are projected to lead to significant coverage loss for adults and children. Over 11 million individuals are estimated to lose their health insurance coverage under Medicaid due to cuts from the OBBBA. In a landscape where mental health demands more resources without proportional returns, hospitals risk financial instability, potentially leading to service cuts or closures. These funding reductions could cause many individuals to lose access to essential mental health and substance use disorder services. Community mental health centers, which rely heavily on federal funding, are particularly vulnerable to these cuts and may be forced to reduce or eliminate services. As of July 2025, reports indicate these cuts could revoke up to $11 billion in funding for addiction and mental health care.
Escalating Costs Amid Declining Reimbursements in Mental Health Services
Hospitals’ challenges extend beyond mental health-specific funding. Overall operating expenses rose by about 11.1% in 2025 compared to 2024, driven by factors like electronic health records (EHR) implementation, malpractice insurance, and staff salaries. EHR systems, while improving care coordination, impose high capital costs that can lead to downsizing or staff attrition. Malpractice premiums have historically fluctuated but contribute to ongoing financial pressure, especially as claims rates influence insurer demands. Salaries, too, are climbing due to labor shortages and inflation. Behavioral health providers and health professionals are particularly impacted by these financial pressures and reimbursement cuts, which make it harder to deliver essential mental health and addiction services. Medicaid coverage loss will worsen behavioral health workforce shortages. Social workers, who play a key role in community-based mental health and crisis response programs, are also affected by workforce shortages and funding challenges.
Compounding this, reimbursements are falling. Medicare payments, adjusted for inflation, have declined by 33% from 2001 to 2025, with a 2.83% cut in 2025 alone. Hospital reimbursements from Medicare Advantage plans dropped 8.8% on a cost basis during recent periods. This squeeze—rising costs versus shrinking revenue—makes sustaining mental health services, which often yield lower margins, increasingly difficult. The One Big Beautiful Bill Act cut federal funding for Medicaid by 15%, or $1 trillion, over 10 years, further straining the ability of hospitals to maintain these services. These cuts will heighten the nation’s behavioral health crisis and reduce access to treatment. According to April 2025 AHA data, hospital expenses have surged and remain elevated, with labor costs dominating the increases. As of July 2025, PwC notes that claims costs continue to rise as hospitals shoulder heavier operating outlays.
The Irony: More Mental Health Spending, Less Access to Care
Paradoxically, the push for increased mental health spending could exacerbate access issues. As budgets tighten under the new bill, hospitals may prioritize profitable services over behavioral health, leading to longer wait times, fewer providers, and reduced availability. This shift further reduces the availability of behavioral health care and behavioral health services for those in need. Individuals with mental illnesses and significant behavioral health needs are disproportionately affected by these access barriers. Funding cuts disproportionately harm low-income, uninsured, and rural communities by reducing access to mental health services. Delayed and untreated mental health conditions can lead to severe outcomes, including higher suicide risk and substance abuse. Affordability remains a top barrier; law enforcement has too often become the default response to mental health crises due to underfunded community-based care. Even as national mental health spending rises, individual out-of-pocket costs and insurance limitations deter utilization.
Telepsychiatry Benefits: A Cost-Effective Path Forward for Mental Health Treatment
Amid these challenges, telepsychiatry emerges as a viable strategy to lower costs while maintaining or even enhancing care quality, with 2025 trends showing increased integration of AI, hybrid care models, and remote monitoring. Companies like FasPsych, a leading behavioral health and telepsychiatry network, demonstrate how virtual care models can reduce financial burdens on hospitals and provide numerous telepsychiatry articles for organizations seeking integration and staffing insights. By offering flexible payment structures—such as pay-by-visit, pay-by-hour, or pay-by-day with no upfront costs—organizations pay only for the time used, potentially saving up to $200,000 per new hire compared to traditional recruitment. The drug overdose rate among Medicaid beneficiaries of all ages was 54.6 per 100,000 people, more than twice the national average in 2020. This approach yields a $4 return on every $1 invested, driven by reduced overhead, scalable staffing, and seamless integration with existing EHR systems, which minimizes operational disruptions and enhances efficiency.
In fact, FasPsych positions itself as a direct solution to the mental health staffing crisis, projected to result in a shortage of 14,000–31,000 psychiatrists by 2030, with a shortfall of about 31,000 full-time equivalent mental health practitioners by 2025 according to recent HRSA and National Council data. Through its network of over 100 active psychiatrists and 400+ providers, it enables faster hiring (within weeks versus 6–12 months), 24/7 coverage, and a 30% reduction in no-show appointments, all while improving access in rural and correctional settings. This not only cuts costs associated with traditional hiring but also reduces provider burnout by 25%, ensuring consistent, evidence-based care for conditions like depression and anxiety.
Telepsychiatry also plays a critical role in expanding access to care for individuals with substance use, substance abuse, and substance use disorders, as well as those facing mental health and substance challenges. By providing timely intervention and support, telepsychiatry helps address behavioral health crises and mental health crises, particularly in underserved areas. Decreasing deaths from overdoses requires medications such as naloxone, which faces elimination in proposed budgets. Integrated approaches to substance abuse and mental health, supported by effective addiction policy and drug policy, are essential for addressing these crises and improving outcomes. Additionally, telepsychiatry and virtual care models can help reduce overdose deaths by improving access to timely treatment and crisis lifeline services for those at risk.
Telepsychiatry enables healthcare organizations to expand services without exceeding current budgets through several key mechanisms:
- Bypassing High Direct Hiring Costs: Traditional psychiatrist recruitment incurs average start-up costs of $211,000 per new doctor, plus annual salaries averaging $247,350 to $259,497; telepsychiatry’s pay-per-use model eliminates these upfront expenses, allowing funds to be redirected toward patient care.
- Mitigating Turnover Expenses: Physician turnover costs range from $250,000 to $1 million per doctor, including lost revenue (up to $2.4 million annually per physician) and recruitment; telepsychiatry reduces burnout by 25% and stabilizes staffing, minimizing these financial hits and enabling sustained service delivery.
- Flexible Scaling for Demand Fluctuations: Organizations can adjust provider hours on-demand without committing to full-time positions, converting fixed costs into variable ones and potentially saving $361 per patient through reduced overhead and efficient resource allocation.
- Enhancing Access in Underserved Areas: By eliminating the need for physical infrastructure and travel, telepsychiatry extends services to rural populations, decreasing staffing costs and improving recruitment/retention while avoiding expensive ED redirects.
- Boosting Efficiency and Reducing Downstream Costs: Integration with tools like AI for documentation streamlines operations, cutting administrative burdens and preventing costly urgent care visits, ultimately increasing service volume within existing financial constraints.
Leveraging Telemedicine for Smarter Resource Allocation in Mental Health Care
With telemedicine, the objective is not to seek additional funding for technology but to harness it for more intelligent decisions within existing budgets. This shift emphasizes efficiency over expansion, allowing hospitals to optimize resources amid declining reimbursements. For instance, artificial intelligence (AI) integration exemplifies this approach: AI tools use natural language processing to transcribe and summarize consultations in real time, auto-generate notes, and suggest accurate billing codes, reducing documentation errors and claim denials. In mental health care, this enhances patient experience by enabling better eye contact and personalized treatment plans while streamlining reimbursement processes through automated insurance verification and compliance with CMS guidelines. These innovations are transforming the behavioral health field by enabling more efficient and effective care delivery across mental health and substance use services. By minimizing administrative overhead, AI frees up funds for direct care, demonstrating how technology can drive cost-effective, high-quality outcomes without new investments. As of March 2025, HHS updates confirm Medicare telehealth extensions for non-behavioral health through September 30, 2025.
Toward a Sustainable Path for Mental Health Funding and Services in 2025
The trajectory of mental health spending highlights a critical juncture for U.S. healthcare. While investments are vital, the current model—marked by rising costs, declining reimbursements, and policy cuts—risks undermining access and equity. Policymakers must balance calls for more mental health funding with reforms that address inefficiencies, such as better reimbursement parity and targeted support for rural providers. Embracing telepsychiatry models like FasPsych’s could bridge these gaps, promoting sustainable, evidence-based mental health care. Without change, the promise of improved mental health services may remain out of reach for many.
To explore how telepsychiatry can align with your facility’s goals and enhance sustainability, reach out to FasPsych for a no-obligation discussion. Call 877-218-4070 or fill out the form at Partner With Us to schedule a free consultation with a telemedicine implementation specialist—focused on collaborative insights, not a sales pitch.