Federal spending on behavioral health accelerated during recession as individuals lost employer insurance.

The 2007-09 recession had a dramatic effect on behavioral health spending, with the effect most prominent for private, state, and local payers. During the recession behavioral health spending increased at a 4.6 percent average annual rate, down from 6.1 percent in 2004-07. Average annual growth in private behavioral health spending during the recession slowed to 2.7 percent from 7.2 percent in 2004-07. State and local behavioral health spending showed negative average annual growth, -1.2 percent, during the recession, compared with 3.7 percent increases in 2004-07. In contrast, federal behavioral health spending growth accelerated to 11.1 percent during the recession, up from 7.2 percent in 2004-07. These behavioral health spending trends were driven largely by increased federal spending in Medicaid, declining private insurance enrollment, and severe state budget constraints. An increased federal Medicaid match reduced the state share of Medicaid spending, which prevented more drastic cuts in state-funded behavioral health programs during the recession. Federal Medicaid served as a critical safety net for people with behavioral health treatment needs during the recession.