Children and youth with serious behavioral health conditions are too often placed in psychiatric residential treatment facilities and psychiatric hospitals due to their challenging behaviors and complex needs. They are also often involved in multiple child-serving systems, such as the child welfare, juvenile justice and special education systems. Medicaid covers 4 in 10 children and youth from birth through age 18 in the U.S., with even higher percentages in many states. In 2021, 30 percent of parents with children on Medicaid & CHIP reported their child had a mental, emotional, developmental, or behavioral problem. In September 2025, total Medicaid and CHIP enrollment nationally was 77.1 million individuals–with 36.7 million of them children.
Medicaid is critical health insurance for these low-income and vulnerable children and youth because of its Early and Periodic Screening, Diagnostic and Treatment (EPSDT) benefit, which entitles children and youth under age 21 to receive a comprehensive array of preventive and behavioral health care services. Under EPSDT, states must furnish all Medicaid- coverable, appropriate, and necessary services needed to correct and ameliorate health and behavioral health conditions, regardless of whether these services are covered for adults. Notably, services need only “ameliorate,” that is maintain or improve a child or young person’s condition–not necessarily restore them to a prior level of functioning or fully remediate their condition, as is often required by commercial plans.
In addition to EPSDT, the Americans with Disabilities Act (ADA) and Section 504 of the Rehabilitation Act prohibit disability-based discrimination that excludes children with significant behavioral health needs from receiving services. These laws are designed to ensure children aren’t denied care and that they receive needed care in the least restrictive setting, often involving home and school-based services and supports. EPSDT, the ADA, and the Rehabilitation Act work together to ensure children with behavioral needs can access medically necessary services in their home and community-based settings, rather than be segregated in institutions.
Recent settlement agreements reached in federal court class action lawsuits in 2025 on behalf of Medicaid-eligible children and youth in Michigan, Colorado, Iowa and, most recently this month in New York, will deliver sweeping improvements to each state’s Medicaid behavioral health system for children. These settlements require the states to cover and provide intensive care coordination, intensive home-based care, and mobile crisis services when necessary to address a child’s condition under the Medicaid EPSDT entitlement. These settlements reflect evidence-based practices because intensive Medicaid-covered home and community based services, such as Intensive Care Coordination through Wraparound, have been shown to have demonstrated effective results while institutional treatment has no similar outcomes.
These agreements all share the following goals: first, to ensure children and youth with serious behavioral health needs have access to intensive home and community-based services (IHCBS) statewide that will keep them at home with their families and caregivers; second, to establish a standardized eligibility and assessment process and tool so that children are identified and connected with these services consistently and equitably; third, to improve data collection and oversight to track services and outcomes; and last, to Implement continuous quality improvement measures to sustain progress and achieve better outcomes.
Aside from the proven effectiveness of these services in helping children and youth achieve better outcomes, delivering these intensive behavioral health services in the home and community is far more cost-effective than serving children in hospitals, psychiatric residential treatment facilities or other institutions, thereby saving states Medicaid resources that can be more effectively utilized elsewhere.
These federal court settlements will have a direct and meaningful impact on children and their families, so parents and caregivers are not forced to choose between placing their children in hospitals and institutions or going without care altogether. The services developed and provided by states through these agreements will provide children, youth and families with the dignity and justice they deserve.
Given that federal Medicaid cuts passed by Congress in 2025, as part of so-called “One Big Beautiful Bill Act,” threaten to hobble state budgets, states should spend Medicaid funds on proven and effective services. By following the lead of states that are investing in home and community-based behavioral health care, children and youth can thrive as they move into adolescence and adulthood. These groundbreaking settlement agreements will achieve an effective treatment system of care for children with significant behavioral health needs using a cost-effective policy approach for states. Securing these critical victories is a win-win for children and youth and the states that serve them.