Understanding the Landscape of Substance Use Disorder Coverage under Medicare: A Comprehensive Analysis

Many thanks to our sponsor Maggie who helped us prepare this research report.

Abstract

Substance Use Disorders (SUDs) represent a formidable and escalating public health crisis in the United States, impacting millions of individuals across diverse demographic spectra. Medicare, the cornerstone federal health insurance program predominantly serving the elderly aged 65 and above, as well as certain younger individuals with qualifying disabilities, has been historically characterized by significant and pervasive limitations in its coverage of SUD treatments. This extensive research report undertakes a profound and multifaceted analysis of Medicare’s SUD coverage paradigm. It meticulously traces its evolutionary trajectory, dissects its current constraints when juxtaposed with the more expansive provisions of other public and private insurance programs, critically examines the intricate legislative and regulatory architectures that underpin and constrain these policies, and elucidates the profound economic and public health repercussions emanating from existing coverage lacunae. Furthermore, the report rigorously investigates a spectrum of proposed policy reforms, evaluating their potential efficacy in substantially enhancing access to and ameliorating the outcomes of evidence-based SUD treatments for the program’s burgeoning population of beneficiaries.

Many thanks to our sponsor Maggie who helped us prepare this research report.

1. Introduction

Substance Use Disorders (SUDs) are complex, chronic, and often relapsing conditions defined by a compulsive and problematic pattern of psychoactive substance use, encompassing a wide array of substances from alcohol and nicotine to illicit drugs and prescription medications. The Diagnostic and Statistical Manual of Mental Disorders, Fifth Edition (DSM-5) characterises SUDs along a continuum of severity, underscoring their nature as medical conditions impacting brain function and behavior ([American Psychiatric Association, 2013]). Far from being mere moral failings or weaknesses of will, SUDs are increasingly recognized as chronic brain diseases, influenced by a confluence of genetic predispositions, psychological vulnerabilities, social determinants, and environmental stressors. This evolving understanding necessitates a comprehensive, long-term approach to treatment that integrates medical, psychological, and social support interventions.

The demographic landscape of SUDs in the United States is undergoing a significant shift, with a notable and concerning rise in prevalence among older adults. In 2019, an alarming figure of over 1.2 million adults aged 65 and older were diagnosed with a SUD ([healthaffairs.org]). This demographic, often overlooked in public discourse surrounding addiction, faces unique challenges. These include a higher likelihood of polypharmacy (the concurrent use of multiple medications), increased susceptibility to social isolation and loneliness, the experience of cumulative grief and loss, and age-related physiological changes that can alter drug metabolism and increase sensitivity to substance effects ([National Institute on Drug Abuse, 2020]). Despite this escalating need, a striking disparity exists in treatment engagement, with only a mere 23% of older adults diagnosed with a SUD reportedly receiving any form of treatment ([healthaffairs.org]). This substantial treatment gap underscores a critical unmet need within a vulnerable population.

Established in 1965, Medicare was envisioned as a monumental social insurance program designed to provide health coverage primarily for Americans aged 65 and older, as well as younger individuals with specific long-term disabilities. Its initial design, however, reflected the prevailing societal and medical understanding of health conditions at the time, with a predominant focus on acute physical illnesses and largely neglecting the nascent field of behavioral health. Consequently, Medicare’s coverage of mental health and substance use disorder services was initially minimal, characterized by significant limitations, higher cost-sharing requirements, and a narrow scope of covered services and providers. This historical framework has created a persistent structural barrier to comprehensive SUD treatment for its beneficiaries.

Throughout its history, and despite incremental legislative and regulatory adjustments, Medicare’s coverage of SUD services has remained notoriously constrained, particularly concerning crucial, evidence-based levels of care such as Intensive Outpatient Programs (IOPs) and Partial Hospitalization Programs (PHPs). These programs, vital components of a full continuum of care, offer structured, multidisciplinary treatment in less restrictive settings than inpatient hospitalization, making them highly suitable for many individuals, including older adults who may benefit from maintaining community ties and avoiding inpatient disruption ([American Society of Addiction Medicine, 2020]). The persistent exclusion or severe limitation of such services within Medicare creates a fragmented treatment landscape, forcing beneficiaries into either overly restrictive inpatient settings or insufficiently intensive traditional outpatient care, often at critical junctures in their recovery journey. This report endeavours to provide a comprehensive and in-depth examination of Medicare’s SUD coverage, meticulously detailing its historical evolution, scrutinizing its current limitations in comparison to other insurance schemes, and thoroughly analyzing the profound implications of these limitations for the health, well-being, and economic stability of its millions of beneficiaries.

Many thanks to our sponsor Maggie who helped us prepare this research report.

2. Historical Overview of Medicare’s SUD Coverage

Medicare’s journey towards incorporating substance use disorder treatment into its covered benefits has been protracted and incremental, reflecting broader shifts in societal understanding of addiction, evolving medical science, and prevailing political priorities. From its inception in 1965, the program’s design was heavily influenced by a dominant biomedical model of disease, focusing on acute physical ailments and largely excluding or severely limiting coverage for mental health and substance use conditions. At the time, addiction was frequently viewed through a moralistic lens, often stigmatized as a character flaw or a criminal issue rather than a treatable medical condition, which naturally translated into sparse and discriminatory coverage provisions.

In its nascent years, Medicare’s SUD coverage was virtually non-existent, primarily limited to a small subset of services delivered within inpatient hospital settings, typically for acute detoxification. Outpatient services, particularly those specifically geared towards addiction treatment, received minimal, if any, reimbursement. This narrow focus meant that the vast majority of individuals requiring sustained, comprehensive addiction treatment were left without adequate coverage, pushing them towards self-pay options, charity care, or simply foregoing treatment altogether.

Over the decades, a series of legislative and regulatory developments have chipped away at these initial limitations, albeit slowly and unevenly:

• Early Amendments and the Mental Health Parity Act (1996): Minor expansions began to emerge, particularly concerning outpatient mental health services, but significant disparities remained between physical and mental health benefits. The Mental Health Parity Act of 1996 was a landmark step towards addressing these disparities in employer-sponsored health plans, mandating that annual and lifetime dollar limits for mental health benefits be no lower than those for medical and surgical benefits. However, this act had no direct application to Medicare, leaving its beneficiaries outside the scope of its protections.

• Mental Health Parity and Addiction Equity Act (MHPAEA) of 2008: This pivotal legislation marked a significant shift by requiring most group health plans and health insurance issuers that offer mental health and substance use disorder benefits to provide them at parity with medical and surgical benefits. This meant that financial requirements (like deductibles and co-payments) and treatment limitations (like visit limits) for behavioral health services could be no more restrictive than those for medical/surgical services. Crucially, however, MHPAEA explicitly excluded Medicare from its purview ([medicareadvocacy.org]). This omission was often attributed to concerns about the unique financing structure of Medicare, the potential for significant cost increases, and the complexity of integrating new requirements into an established and vast federal program. This exclusion has perpetuated a two-tiered system of care, where Medicare beneficiaries do not enjoy the same parity protections as individuals covered by commercial insurance or Medicaid.

• The Affordable Care Act (ACA) of 2010: While the ACA did not directly amend Medicare’s core benefit structure for SUDs, it played an indirect but vital role. By designating mental health and substance use disorder services as one of the ten essential health benefits that most new health insurance plans must cover, the ACA reinforced the importance of comprehensive behavioral health care across the broader insurance landscape. This indirectly built momentum and public awareness for the need to extend such comprehensive coverage to Medicare beneficiaries as well, highlighting the disparity.

• The 21st Century Cures Act (2016): Responding to the escalating opioid crisis, the Cures Act included provisions aimed at improving access to mental health and SUD treatment. While much of its impact was on state-level initiatives and research, it demonstrated increasing federal recognition of the urgency of the addiction epidemic and the need for policy interventions. For Medicare, it prompted some administrative attention to addressing opioid use disorder.

• Expansion of Methadone Treatment for Opioid Use Disorder (2020): A notable, albeit limited, expansion occurred in 2020 when Medicare began covering opioid treatment programs (OTPs), which provide comprehensive care for opioid use disorder (OUD), including medication-assisted treatment (MAT) with methadone, along with counseling and other services ([apnews.com]). Prior to this, Medicare Part B only covered buprenorphine and naltrexone as prescription drugs, not the comprehensive clinic-based care associated with methadone. This was a significant step forward, acknowledging the critical role of MAT in OUD recovery. However, this expansion was specific to OUD and did not address the broader spectrum of SUDs or the gaps in other levels of care.

Despite these incremental steps, core services such as Intensive Outpatient Programs (IOPs) and Partial Hospitalization Programs (PHPs) have remained largely excluded or severely restricted from Medicare coverage. These programs, which offer structured treatment several hours a day, multiple days a week, provide a critical bridge between acute inpatient care and less intensive outpatient therapy. Their exclusion or limitation has been widely attributed to Medicare’s outdated benefit definitions, restrictive billing codes, and regulatory constraints that have not kept pace with contemporary evidence-based treatment models for SUDs ([healthaffairs.org]). The historical legacy of underfunding and stigmatization of behavioral health services within Medicare continues to manifest as significant barriers to effective and equitable SUD care for older adults and individuals with disabilities.

Many thanks to our sponsor Maggie who helped us prepare this research report.

3. Current Limitations Compared to Other Insurance Programs

Medicare’s current substance use disorder (SUD) coverage framework stands in stark contrast to the more comprehensive and flexible benefit structures offered by other major insurance programs, particularly Medicaid and many commercial insurance plans. This disparity creates a fragmented and often inadequate treatment pathway for Medicare beneficiaries, limiting access to a full continuum of care that is widely recognized as essential for effective SUD recovery.

To understand these limitations, it is important to first delineate how Medicare’s various parts address SUDs:

• Medicare Part A (Hospital Insurance): Primarily covers inpatient care, including medically necessary inpatient detoxification services. This typically involves managing withdrawal symptoms in a hospital or skilled nursing facility setting. While essential for acute stabilization, Part A coverage is time-limited and does not extend to long-term rehabilitation or the step-down levels of care crucial for sustained recovery. For example, it generally covers services in an inpatient rehabilitation facility only if the beneficiary requires intensive rehabilitation for a medical condition, and addiction treatment is usually not considered the primary reason for admission under this narrow interpretation.

• Medicare Part B (Medical Insurance): Covers outpatient services, including individual and group therapy, psychiatric evaluations, medication management, and visits with physicians and certain other healthcare providers. In 2020, Part B began covering services provided by Opioid Treatment Programs (OTPs), which include methadone, buprenorphine, naltrexone, individual and group therapy, toxicology testing, and case management for individuals with opioid use disorder (OUD) ([Pew Charitable Trusts, 2023]). However, significant gaps persist. For instance, Medicare Part B generally does not cover Intensive Outpatient Programs (IOPs), a critical intermediate level of care that provides structured therapeutic services for 9-19 hours per week ([American Society of Addiction Medicine, 2020]). This omission forces beneficiaries to choose between a full inpatient stay, which may be overly restrictive or medically unnecessary, and traditional outpatient therapy, which may lack the intensity required for significant progress in recovery. Similarly, Medicare’s coverage of Partial Hospitalization Programs (PHPs), which offer a higher level of intensity (typically 20 or more hours per week) than IOPs but do not require overnight stays, is severely restricted. PHPs are generally only covered when provided in hospital outpatient departments or community mental health centers, thereby excluding services delivered in many community-based, freestanding addiction treatment centers where these programs are often administered ([healthaffairs.org]). This restrictive setting limitation significantly curtails access, as many effective PHP services are delivered outside of traditional hospital walls.

• Medicare Part C (Medicare Advantage Plans): These are private health plans approved by Medicare that provide Part A and Part B benefits, and often Part D. While Medicare Advantage plans are required to cover all services that Original Medicare covers, they can offer additional benefits, which may include more expansive SUD coverage, such as some coverage for IOPs or PHPs, or a wider network of providers. However, the extent of these additional benefits varies significantly by plan, and beneficiaries often face network restrictions, prior authorization hurdles, and potentially higher out-of-pocket costs, making access inconsistent and often confusing ([Medicare Rights Center, 2022]).

• Medicare Part D (Prescription Drug Coverage): This part covers prescription medications for SUDs, including medications for opioid use disorder (MOUD) such as buprenorphine and naltrexone, and medications for alcohol use disorder (AUD) like naltrexone, acamprosate, and disulfiram. While Part D is crucial for accessing these life-saving medications, coverage can be impacted by plan formularies, prior authorization requirements, and various cost-sharing tiers, which can create financial barriers for beneficiaries ([U.S. Department of Health and Human Services, 2022]).

Comparison with Medicaid

Medicaid, the joint federal and state health care program for low-income individuals and families, stands in stark contrast to Medicare regarding SUD coverage. Following the passage of the Affordable Care Act (ACA) and its essential health benefits provisions, Medicaid programs, particularly in states that expanded eligibility, are required to cover a comprehensive range of mental health and SUD services. This often includes:

• Full Continuum of Care: Medicaid typically covers the full continuum of care as defined by the American Society of Addiction Medicine (ASAM) criteria, which includes all levels of intensity from brief interventions and standard outpatient services to IOPs, PHPs, residential treatment, and inpatient medically managed withdrawal and intensive inpatient services. This allows for seamless transitions between levels of care as an individual’s needs evolve, fostering better outcomes.

• Broader Provider Types: Medicaid generally allows for a wider array of licensed and certified professionals to provide SUD services, including licensed professional counselors, certified addiction counselors, peer support specialists, and social workers, often in diverse community-based settings. This expands access significantly, especially in underserved areas.

• Parity Requirements: Medicaid managed care plans and state Medicaid programs are subject to the Mental Health Parity and Addiction Equity Act (MHPAEA) requirements, ensuring that SUD benefits are offered on par with medical and surgical benefits, without more restrictive financial or treatment limitations.

This comprehensive approach in Medicaid means that individuals eligible for both Medicare and Medicaid (dual eligibles) often rely on Medicaid for their more robust SUD benefits, highlighting the inadequacy of Medicare’s standalone coverage.

Comparison with Commercial Insurance

Commercial insurance plans, particularly those regulated under federal law, are also largely subject to MHPAEA, mirroring Medicaid’s parity requirements. This means that, in theory, commercial plans must provide SUD benefits at parity with medical and surgical benefits, covering a broad spectrum of services including:

• IOPs and PHPs: Widely covered as standard benefits.
• Residential Treatment: Often covered, though typically subject to medical necessity criteria and prior authorization.
• Medication-Assisted Treatment (MAT): Comprehensive coverage for medications and associated counseling.
• Diverse Provider Networks: Broader access to a variety of credentialed SUD treatment providers and facilities.

While real-world implementation of parity can be imperfect, with some commercial plans still imposing subtle barriers, the statutory framework for commercial insurance is far more robust than that of Medicare. This disparity means that an individual transitioning from commercial insurance to Medicare upon retirement may experience a significant reduction in their SUD treatment options, creating a jarring discontinuity in care for a chronic condition.

The net effect of these limitations is that Medicare beneficiaries face reduced access to essential SUD treatments, are often funneled into suboptimal levels of care, and may encounter significant financial burdens or administrative hurdles in seeking the help they need. This results in prolonged illness, increased risk of relapse, and ultimately, higher healthcare costs due to recurrent crises and untreated comorbidities.

Many thanks to our sponsor Maggie who helped us prepare this research report.

4. Legislative and Regulatory Frameworks Influencing Medicare’s SUD Coverage

The limitations inherent in Medicare’s substance use disorder (SUD) coverage are not arbitrary; they are deeply rooted in a complex interplay of historical legislative omissions, evolving regulatory interpretations, and persistent policy constraints. Understanding these foundational frameworks is crucial to appreciating the structural barriers that hinder comprehensive SUD care for Medicare beneficiaries.

Exclusion from the Mental Health Parity and Addiction Equity Act (MHPAEA)

One of the most significant legislative factors influencing Medicare’s discriminatory SUD coverage is its explicit exclusion from the Mental Health Parity and Addiction Equity Act (MHPAEA) of 2008. As discussed, MHPAEA mandates that health plans offering mental health and SUD benefits must ensure that the financial requirements (e.g., deductibles, co-payments, out-of-pocket maximums) and treatment limitations (e.g., frequency of treatment, duration of treatment, medical necessity criteria) applicable to those benefits are no more restrictive than the predominant financial requirements and treatment limitations applied to substantially all medical and surgical benefits. The rationale behind Medicare’s exclusion from this landmark legislation was multifaceted and controversial.

Advocates for the exclusion often cited concerns about the potential for substantial increases in Medicare expenditures if parity were to be fully implemented, arguing that the program’s unique financing structure (funded through payroll taxes and general revenues) and its vast beneficiary population made it distinct from employer-sponsored or private health plans. There were also arguments about the administrative complexities of adapting a long-established federal program to new parity requirements. However, proponents of inclusion, including numerous advocacy groups like the Legal Action Center and the Medicare Rights Center, vehemently argued that this exclusion perpetuates a discriminatory system, effectively valuing physical health over mental and behavioral health for older adults and individuals with disabilities ([medicarerights.org], [Legal Action Center, 2021]). They contend that the absence of parity protections means Medicare can, and often does, impose more stringent limitations on SUD services (e.g., narrower provider networks, stricter prior authorization, exclusion of certain levels of care) compared to medical or surgical services, directly impacting access and quality of care.

Medicare’s Benefit Design and Statutory Language

Beyond MHPAEA, Medicare’s core benefit design, as defined by Title XVIII of the Social Security Act and subsequent amendments, inherently limits SUD coverage. Unlike some other insurance programs that might adopt a more flexible ‘medical necessity’ standard across a broad range of services, Medicare’s coverage is often tied to specific, enumerated benefits and defined ‘sites of service.’ For instance:

• Specific Service Definitions: Medicare’s statutes and regulations historically delineate specific services that are covered (e.g., inpatient hospital care, physician services, outpatient therapy). If a particular SUD treatment modality, such as an Intensive Outpatient Program (IOP) or Partial Hospitalization Program (PHP) delivered in a freestanding community setting, does not neatly fit into an existing Medicare benefit category or billing code, it is simply not covered, regardless of its clinical effectiveness. This forces providers to either restructure their programs to fit Medicare’s narrow definitions (which can compromise treatment fidelity) or forego serving Medicare beneficiaries altogether.

• Site-of-Service Restrictions: Medicare often restricts where certain services can be delivered to be reimbursed. As noted, PHPs, while theoretically covered, are often limited to hospital outpatient departments or specific community mental health centers, excluding many specialized addiction treatment facilities that are not hospital-affiliated ([healthaffairs.org]). This impedes access, especially in rural areas or communities lacking hospital-based programs.

• Provider Type Restrictions: For many years, Medicare only reimbursed a limited set of licensed professionals for mental health and SUD services (e.g., physicians, clinical psychologists, clinical social workers). While there have been some expansions (e.g., inclusion of Licensed Professional Counselors and Marriage and Family Therapists in 2024 for mental health, but still largely limited for primary addiction counseling), many highly skilled and credentialed addiction professionals, such as Certified Addiction Counselors or peer support specialists, have historically been unable to directly bill Medicare for their essential services. This restricts the workforce available to serve beneficiaries.

The Role of the Centers for Medicare & Medicaid Services (CMS)

CMS, the federal agency responsible for administering Medicare, plays a crucial role in shaping SUD coverage through its regulatory authority. While legislative acts establish the broad parameters, CMS issues regulations, guidance, and national coverage determinations (NCDs) that interpret and implement these laws. These administrative actions define specific billing codes, establish medical necessity criteria, set reimbursement rates, and determine which providers and services are eligible for payment. Historically, CMS’s interpretations have tended to be conservative, reflecting the original narrow design of Medicare and its fiscal responsibilities.

However, CMS has also been a vehicle for some positive change, often in response to public health crises or advocacy efforts. The 2020 decision to cover services provided by Opioid Treatment Programs (OTPs) for OUD was a direct result of CMS’s administrative authority, operationalizing legislative intent from the SUPPORT for Patients and Communities Act (2018). While a significant step, this specific expansion highlights the piecemeal nature of Medicare’s progress, often driven by acute crises rather than a holistic understanding of comprehensive SUD care.

Budgetary and Political Considerations

Underlying all legislative and regulatory decisions concerning Medicare are significant budgetary and political considerations. Expanding Medicare benefits, particularly for behavioral health services, often comes with projected costs that can face resistance in Congress. The perception, even if unsubstantiated, that expanding coverage for SUDs would be prohibitively expensive has historically deterred comprehensive reform efforts. However, counter-arguments, supported by research (such as the RTI International report discussed later), suggest that the long-term economic benefits of comprehensive SUD treatment through reduced healthcare utilization and improved health outcomes could offset initial costs ([RTI International, 2022]).

The ongoing stigmatization of SUDs, although diminishing, also continues to play a subtle but pervasive role. While overt discrimination is less common in modern policy discourse, the historical perception of SUDs as personal failings rather than chronic diseases has contributed to a policy environment where SUD treatment is often viewed as an ‘add-on’ or a discretionary benefit rather than an essential component of healthcare, further impacting its prioritization in legislative agendas.

In summary, the legislative and regulatory frameworks governing Medicare’s SUD coverage are a patchwork of historical exclusions, restrictive statutory language, and cautious administrative interpretations. While recent years have seen some movement towards greater inclusivity, these frameworks continue to impose substantial barriers to equitable and effective SUD care for a population increasingly in need.

Many thanks to our sponsor Maggie who helped us prepare this research report.

5. Economic and Public Health Consequences of Coverage Gaps

The persistent gaps in Medicare’s substance use disorder (SUD) coverage have far-reaching and devastating consequences, manifesting across both public health outcomes and economic indicators. These consequences extend beyond the individual beneficiary, impacting families, communities, and the broader healthcare system.

Public Health Implications

1. Increased Morbidity and Mortality: Perhaps the most tragic consequence of inadequate SUD coverage is the heightened risk of adverse health outcomes, including increased mortality rates, particularly from overdose. Older adults are not immune to the opioid crisis or other substance-related harms. A study published in JAMA Internal Medicine revealed a stark reality: in 2020, among Medicare beneficiaries who survived a drug overdose, 53% received opioid painkillers, yet only a minuscule 4% received evidence-based treatments such as buprenorphine (a vital medication for opioid use disorder), and a mere 6% filled prescriptions for naloxone, an opioid overdose reversal medication ([apnews.com]). This profound disconnect between the identified problem and the provision of effective solutions contributes directly to a cycle of repeated overdoses, emergency department visits, and preventable deaths among older adults. Untreated SUDs also lead to higher rates of other substance-related harms, such as liver disease (from alcohol), cardiovascular complications, and increased risk of infectious diseases.

2. Exacerbation of Co-morbidities: Older adults frequently manage multiple chronic physical and mental health conditions (co-morbidities) alongside SUDs. These can include cardiovascular disease, diabetes, hypertension, chronic pain, depression, anxiety, and cognitive impairments like dementia. Untreated SUDs significantly complicate the management of these co-morbid conditions. For example, alcohol use can worsen liver disease, blood pressure, and contribute to falls, while stimulant use can exacerbate heart conditions. Conversely, chronic pain often leads to opioid misuse. When SUDs are not adequately addressed, it undermines treatment efficacy for other medical conditions, leading to poorer overall health outcomes, increased functional decline, and a diminished quality of life. The lack of integrated care, where physical and behavioral health needs are addressed concurrently, further compounds these challenges.

3. Delayed or Inappropriate Care: Due to limited coverage for intermediate levels of care like IOPs and PHPs, beneficiaries often present to emergency departments in crisis or require expensive inpatient detoxification services when a less intensive, community-based program could have prevented the acute episode or provided a more appropriate level of care earlier in the disease progression. This forces beneficiaries into a ‘failure to treat’ model where only the most severe crises receive attention, rather than a preventative or early intervention approach.

4. Social Isolation and Reduced Quality of Life: SUDs often lead to social withdrawal, strained family relationships, and loss of independence, which are particularly detrimental for older adults who may already be vulnerable to loneliness and isolation. The inability to access effective treatment exacerbates these issues, leading to a poorer quality of life, increased caregiver burden, and a greater reliance on institutional care rather than aging in place within the community. Cognitive decline, already a concern in older age, can also be accelerated or worsened by chronic substance use.

5. Perpetuation of Stigma: The historical under-coverage and differential treatment of SUDs within Medicare, compared to other medical conditions, inadvertently reinforces the societal stigma surrounding addiction. This implicit messaging from a major federal program can make beneficiaries less likely to seek help, fearing judgment or believing that their condition is not ‘legitimate’ enough to warrant comprehensive medical attention.

Economic Implications

1. Increased Healthcare Utilization and Costs: The most direct economic consequence of coverage gaps is the resultant increase in healthcare utilization and associated costs. Without access to comprehensive, continuous, and evidence-based SUD treatment, beneficiaries are more likely to experience:
   • Higher Rates of Emergency Department (ED) Visits: For acute intoxication, overdose, withdrawal symptoms, or complications of untreated co-morbidities exacerbated by substance use.
   • Repeated Inpatient Hospitalizations: Including multiple detoxification admissions without subsequent linkage to ongoing treatment, leading to a costly revolving door phenomenon.
   • Increased Nursing Home Admissions: When substance use impairs an older adult’s ability to live independently, they may require admission to a nursing facility, which is significantly more expensive than community-based care.
   • Higher Costs for Treating Co-morbidities: As previously mentioned, untreated SUDs make it more challenging and expensive to manage other chronic conditions, leading to more frequent doctor visits, medication changes, and specialist consultations.

A report by RTI International in 2022 highlighted this economic paradox, estimating that the ‘cost of adding substance use disorder coverage to Medicare would be slim’ relative to the potential savings from reduced acute care utilization ([RTI International, 2022]). The report suggested that a modest investment in comprehensive SUD treatment could lead to significant long-term savings by averting more expensive downstream healthcare events.

1. Productivity Losses (Indirect Costs): While less directly applicable to the retired Medicare population, untreated SUDs can still lead to indirect economic costs. Some older adults remain in the workforce, and their productivity can be severely hampered. For caregivers (often family members), the burden of caring for an individual with an untreated SUD can lead to absenteeism from work, reduced hours, or early retirement, incurring societal economic costs.

2. Financial Burden on Beneficiaries and Families: When Medicare coverage is insufficient, beneficiaries and their families are often left to bear the financial brunt of treatment. This can involve high out-of-pocket costs for uncovered services, forcing difficult choices between essential medical care, medications, and SUD treatment. For individuals on fixed incomes, these costs can be prohibitive, acting as a direct barrier to seeking and sustaining recovery.

In essence, the current fragmented and limited SUD coverage under Medicare represents a false economy. By stinting on comprehensive addiction treatment, the program inadvertently incurs higher costs elsewhere in the healthcare system, while simultaneously perpetuating suffering, disability, and preventable deaths among its most vulnerable beneficiaries. Addressing these coverage gaps is not merely a matter of equity but also a fiscally prudent investment in public health.

Many thanks to our sponsor Maggie who helped us prepare this research report.

6. Proposed Policy Reforms

Addressing the systemic limitations in Medicare’s substance use disorder (SUD) coverage requires a multi-pronged approach encompassing legislative changes, regulatory adjustments, and a paradigm shift in how addiction is viewed and treated within the program. Several key policy reforms have been consistently advocated by addiction treatment experts, patient advocates, and policy organizations. These proposed changes aim to align Medicare’s SUD benefits with contemporary evidence-based practices and ensure equitable access to care for its beneficiaries.

6.1. Expansion of Covered Services: Aligning with the Continuum of Care

The most fundamental reform proposed is the expansion of Medicare coverage to include a full continuum of SUD treatment services, in line with the widely recognized American Society of Addiction Medicine (ASAM) Criteria. The ASAM Criteria provide a comprehensive framework for assessing patient needs and matching them to appropriate levels of care, from early intervention to long-term recovery support ([American Society of Addiction Medicine, 2020]). Currently, Medicare’s coverage largely misses several critical points along this continuum:

• Intensive Outpatient Programs (IOPs) and Partial Hospitalization Programs (PHPs): These represent intermediate levels of care, crucial for individuals who require more intensive support than traditional weekly outpatient therapy but do not need 24-hour medical supervision. IOPs typically provide 9-19 hours of structured therapy per week, while PHPs offer 20 or more hours. Both integrate various therapeutic modalities, including individual and group counseling, psychoeducation, medication management, and skills training. Their coverage would provide a vital step-down from inpatient care or a step-up for those struggling in less intensive settings, reducing the likelihood of relapse and repeat acute care admissions. Expanding coverage to include these services, particularly when delivered in freestanding, community-based facilities, would significantly broaden access to appropriate care, moving beyond the current restrictive hospital-based PHP model ([healthaffairs.org]).

• Residential Treatment Programs: These programs offer a structured, supportive living environment combined with intensive therapeutic services for varying durations (e.g., 30, 60, or 90 days, or longer for certain models like therapeutic communities). They are particularly beneficial for individuals with severe SUDs, co-occurring mental health disorders, or those who lack a stable and supportive home environment conducive to recovery. Medicare currently provides extremely limited, if any, coverage for residential treatment, forcing beneficiaries to either self-pay for these expensive programs or forego this critical level of care. Including residential treatment in Medicare’s benefit package, with clear medical necessity criteria, would address a significant gap in the continuum.

• Comprehensive Medication-Assisted Treatment (MAT): While Medicare has expanded coverage for Opioid Treatment Programs (OTPs) and medications like buprenorphine and naltrexone under Part D, further refinements are needed. This includes ensuring comprehensive coverage of all FDA-approved medications for alcohol use disorder (e.g., naltrexone, acamprosate, disulfiram) and ensuring that these medications are integrated with psychosocial services, as recommended by evidence. Policy should also support the elimination of barriers to buprenorphine prescribing, such as the now-lifted X-waiver, and ensure that practitioners can easily integrate MAT into their practices without excessive administrative burden.

6.2. Inclusion of Additional Providers: Expanding the Workforce

Currently, Medicare’s reimbursement policies for behavioral health services are often restricted to a limited set of licensed professionals, primarily physicians, clinical psychologists, and clinical social workers. This narrow scope creates workforce shortages and limits access, especially in rural or underserved areas. Proposed reforms advocate for the inclusion of a broader range of qualified and licensed providers:

• Licensed Professional Counselors (LPCs) and Licensed Marriage and Family Therapists (LMFTs): These highly trained professionals provide a significant portion of mental health and addiction counseling services nationwide. While Medicare began covering their mental health services in 2024, their ability to deliver and be reimbursed for addiction-specific counseling needs to be explicitly clarified and expanded. Their inclusion would substantially increase the available pool of qualified therapists.

• Certified Addiction Counselors (CACs) and Other Addiction Specialists: Many states license or certify professionals specifically in addiction counseling, often with unique training and expertise in SUD treatment. Currently, these professionals cannot directly bill Medicare, even if they possess extensive experience and are delivering evidence-based care. Allowing direct Medicare reimbursement for these specialists would leverage a vital workforce, particularly for group therapy, psychoeducation, and case management specific to addiction.

• Peer Support Specialists: These individuals, who have lived experience with SUDs and are in recovery, offer invaluable support, empathy, and practical guidance to others on their recovery journey. Evidence suggests that peer support significantly improves treatment engagement and outcomes. Establishing a mechanism for Medicare reimbursement for qualified peer support services would integrate this crucial recovery support into the formal treatment system, fostering a more holistic approach to care ([medicareadvocacy.org]).

• Telehealth Expansion: The COVID-19 pandemic demonstrated the vital role of telehealth in providing continuous care, especially for SUDs. Policy reforms should codify and permanently expand Medicare coverage for SUD services delivered via telehealth, removing arbitrary geographic or originating site restrictions. This is particularly beneficial for older adults with mobility issues, those in rural areas, or individuals who face transportation barriers.

6.3. Application of the Mental Health Parity and Addiction Equity Act (MHPAEA)

Arguably the most impactful legislative change proposed is the amendment of MHPAEA to explicitly include Medicare within its purview ([medicarerights.org], [Legal Action Center, 2021]). Applying parity standards to Medicare would mandate that financial requirements (e.g., co-payments, deductibles) and treatment limitations (e.g., number of visits, prior authorization strings, medical necessity criteria) for SUD services be no more restrictive than those for medical and surgical benefits. This would address the fundamental discriminatory framework that currently governs Medicare’s SUD coverage. The implications would be profound:

• Elimination of Financial Disparities: Beneficiaries would face equitable cost-sharing for SUD treatment, reducing financial barriers.
• Broadening of Treatment Limitations: Restrictions on types or duration of services, such as the effective exclusion of IOPs, would likely be challenged and expanded under parity requirements.
• Improved Medical Necessity Reviews: Parity would require that criteria for determining medical necessity for SUD services are developed and applied in the same way as for medical/surgical services, reducing arbitrary denials of care.
• Enhanced Network Adequacy: Medicare Advantage plans would be held to the same network adequacy standards for behavioral health providers as for physical health providers, ensuring better access to specialists.

While cost concerns have historically been a barrier to applying parity to Medicare, evidence suggests that the long-term savings from reduced acute care and improved health outcomes could offset initial expenditures ([RTI International, 2022]).

6.4. Reimbursement Rate Adjustments and Alternative Payment Models

Currently, reimbursement rates for SUD treatments under Medicare are often perceived as inadequate, particularly for intensive services. Low reimbursement rates disincentivize providers from offering SUD services to Medicare beneficiaries or from investing in the specialized infrastructure required for comprehensive addiction treatment. Proposed reforms include:

• Increasing Reimbursement Rates: Adjusting Medicare’s fee-for-service rates for SUD treatment services to better reflect the true cost of providing high-quality, evidence-based care would incentivize more providers to accept Medicare beneficiaries and encourage the expansion of SUD programs ([medicareadvocacy.org]).

• Developing Alternative Payment Models (APMs): Moving beyond traditional fee-for-service, Medicare could explore and implement APMs for SUD treatment. These might include bundled payments for episodes of care, population-based payments, or value-based purchasing models that reward providers for achieving positive patient outcomes (e.g., reduced relapse rates, sustained sobriety, improved functioning) rather than simply for the volume of services delivered. Such models could encourage integrated, person-centered care and foster innovation in treatment delivery.

6.5. Addressing Stigma in Policy and Practice

While not a standalone policy, an underlying theme for all reforms is the need to actively counter the stigma associated with SUDs. Policy language, public awareness campaigns, and CMS guidance can play a significant role in framing SUDs as chronic medical conditions requiring compassionate, evidence-based care, no different from diabetes or heart disease. This societal shift is essential for broad public and political support for comprehensive coverage reforms.

Implementing these proposed policy reforms collectively would represent a monumental step forward in ensuring that Medicare beneficiaries receive the comprehensive, equitable, and effective care they deserve for substance use disorders. Such reforms are not merely an expense but a critical investment in the health and well-being of a growing and vulnerable segment of the U.S. population.

Many thanks to our sponsor Maggie who helped us prepare this research report.

7. Conclusion

Substance Use Disorders (SUDs) pose an increasingly pervasive and severe threat to the health and well-being of older adults in the United States, a demographic predominantly reliant on Medicare for their healthcare needs. Despite the escalating prevalence and profound impact of SUDs within this population, Medicare’s current coverage paradigm for addiction treatment remains remarkably fragmented, antiquated, and significantly less comprehensive than that offered by other major public and private insurance programs. This report has meticulously elucidated how historical legislative oversights, restrictive regulatory frameworks, and an inherent bias towards acute physical health have collectively conspired to create substantial lacunae in Medicare’s SUD benefits, limiting access to essential, evidence-based treatments and contributing to a cascade of adverse public health and economic consequences.

The historical evolution of Medicare’s SUD coverage reveals a pattern of piecemeal, crisis-driven expansions rather than a strategic, holistic development rooted in the understanding of addiction as a chronic disease. The explicit exclusion of Medicare from the Mental Health Parity and Addiction Equity Act (MHPAEA) of 2008 stands as a profound symbol of this disparity, allowing Medicare to impose more restrictive financial requirements and treatment limitations on SUD services compared to medical and surgical care. Consequently, critical intermediate levels of care, such as Intensive Outpatient Programs (IOPs) and Partial Hospitalization Programs (PHPs), remain largely uncovered or are confined to overly restrictive settings, forcing beneficiaries into suboptimal treatment pathways or, worse, no treatment at all.

The ramifications of these coverage gaps are dire. Public health suffers through increased rates of overdose, avoidable mortality, and the exacerbation of co-occurring chronic physical and mental health conditions among older adults. Untreated SUDs lead to diminished quality of life, greater social isolation, and increased burdens on families and caregivers. Economically, the current system represents a false economy. The absence of comprehensive, upfront investment in effective SUD treatment ultimately drives up healthcare expenditures through higher rates of emergency department visits, repeated inpatient hospitalizations for acute stabilization, and more complex management of untreated comorbidities. Evidence suggests that the long-term savings accrued from improved health outcomes and reduced acute care utilization would significantly offset the initial costs of expanding comprehensive SUD coverage.

To rectify these systemic deficiencies, a series of urgent and comprehensive policy reforms are imperative. These reforms include:

1. Broadening the Scope of Covered Services: Mandating Medicare coverage for the full continuum of care as recommended by the American Society of Addiction Medicine (ASAM) Criteria, encompassing IOPs, PHPs, residential treatment programs, and ensuring comprehensive, integrated Medication-Assisted Treatment (MAT) for all relevant SUDs.
2. Expanding the Provider Workforce: Authorizing direct Medicare reimbursement for a wider array of qualified and licensed addiction treatment professionals, including Licensed Professional Counselors, Certified Addiction Counselors, and critically, peer support specialists, thereby increasing access to much-needed expertise and support.
3. Applying Mental Health Parity: Amending MHPAEA to explicitly include Medicare, thereby compelling the program to offer SUD benefits on par with medical and surgical benefits, eliminating discriminatory financial and treatment limitations.
4. Adjusting Reimbursement Rates and Exploring Alternative Payment Models: Increasing inadequate reimbursement rates for SUD services to incentivize provider participation and developing innovative payment models that reward positive outcomes rather than just the volume of services.

These proposed reforms are not merely administrative adjustments; they represent a fundamental commitment to recognizing substance use disorders as chronic, treatable medical conditions. By embracing these changes, Medicare can transition from a system that inadvertently perpetuates suffering and costs to one that actively promotes recovery, improves health outcomes, and ensures equitable access to essential care for all its beneficiaries. The time for comprehensive reform of Medicare’s SUD coverage is not just opportune but critically overdue, aligning the program with modern medical understanding and societal expectations for compassionate and effective healthcare.

Many thanks to our sponsor Maggie who helped us prepare this research report.

References

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