Medicaid, Schools and Parity: The Mental Health Safety Net Is Getting Thinner

Most of the therapy news this year has been about companies. For most families, though, the bigger story is public coverage, and this summer it moved in the wrong direction on several fronts at once.

Medicaid: new work rules put coverage at risk

Medicaid covers nearly one in three adults with a mental illness, nearly one in four adults with a substance use disorder, and nearly half of adults with an opioid use disorder, according to KFF.¹

On June 1, the Centers for Medicare & Medicaid Services (CMS) issued the rule that carries out the Medicaid work requirements in the 2025 budget reconciliation law, and states must begin by January 1, 2027.² People with a substance use disorder or a disabling mental illness can be exempt only if the condition impairs their ability to meet the requirement, and the rule says a diagnosis alone cannot be used to show that. The Congressional Budget Office (CBO) estimates that the work requirement will leave 5.3 million more people uninsured.³ On June 30, Democratic attorneys general from 24 jurisdictions, including the District of Columbia, joined by two governors, sued over how the rule handles that exemption.³

People living with depression, anxiety or addiction are often the ones who struggle most with paperwork and deadlines. A rule that asks them to prove impairment beyond their diagnosis should be expected to cost some of them their coverage.

Schools: grant cuts reached students

In late July, the Department of Education moved to end its school-based mental health grants as of July 31. The program aims to place 14,000 mental health professionals in schools, and in its first year grantees hired about 1,300 and served about 775,000 students.⁴ A federal judge in the Western District of Washington issued a temporary restraining order for the 15 states that sued, and the case is ongoing.⁴

Parity: enforcement on hold

On September 8, the Department of Labor said it will not enforce the new provisions of the 2024 mental health parity rule until a pending lawsuit brought by an employer group is resolved, plus 18 months. In the meantime, it will focus enforcement on three areas: coverage exclusions, medical necessity review, and network adequacy and reimbursement.⁵ The 2024 rule tightened the requirement that insurers cover mental health care on terms no more restrictive than physical health care.

The administration's budget request for fiscal year 2027 would also fold SAMHSA, the Substance Abuse and Mental Health Services Administration, into a new Administration for a Healthy America and cut its mental health services funding by $295.2 million, to $769.2 million.⁶ Congress has not acted on that request.

The apps: no rescue coming

The private therapy market is not filling these gaps. In August, a regulatory filing showed that Sword Health had agreed to buy Headspace, which was valued at about $3 billion in 2021. Axios Pro reported a price of $200 million to $300 million.⁷⁸ BetterHelp and Talkspace both lost cash-paying customers this year, as we covered in August.

App companies follow paying customers. People losing Medicaid, or students losing a school counselor, are rarely the customers these businesses are designed to win, and none of these companies has offered to replace what public programs are losing.

What StartHere.care can and cannot do

We cannot replace Medicaid or a school counselor, and we will not pretend to. What we can do is make it easier to find the therapists who already take the coverage you have.

When clients search on StartHere.care, they can tell us which insurance they have, including Medicaid, and we only show therapists who accept it and are taking new clients. Therapists can also tell us whether they offer a sliding scale. The search is free, and so is listing a practice.

If you are a therapist who accepts Medicaid, we especially want you on the platform. The people who need you most are often the ones with the hardest time finding you.

Therapists: join StartHere.care at no cost. Clients: start your search here.

Sources

1. KFF on Medicaid, mental health and substance use, May 13, 2026.
2. KFF on the medical frailty exemption in the CMS work requirements rule, June 2026.
3. KFF on the states' lawsuit over the work requirements rule, July 2026.
4. Quincy Herald-Whig on the order blocking termination of school mental health grants, July 30, 2026.
5. U.S. Department of Labor, Field Assistance Bulletin 2026-03, September 8, 2026.
6. CADCA on the President's fiscal year 2027 budget request, April 2026.
7. STAT on Sword Health's planned acquisition of Headspace, August 25, 2026.
8. Pharmaphorum on the reported deal price, August 2026.