The effort to pay for more residential foster care with Medicaid money, a controversial proposition that some fear will disincentivize stronger efforts at community-based mental health support, has begun anew in Congress.
California Democrat Julia Brownley and Florida Republican Gus Bilirakis have introduced a bill that revives efforts to permit Medicaid to pay for foster care placements in Qualified Residential Treatment Programs (QRTP), a recently created federal designation for group settings for youth with acute health needs.
If the bill becomes law, QRTPs would join a short list of options that are exempted from the general ban on using Medicaid to pay for Institutions for Mental Disease, or IMD. Under current law, IMDs with more than 16 beds cannot be paid for with Medicaid dollars with the exception of nursing homes, psychiatric wings of hospitals, and for youth or young adults, institutions called psychiatric residential treatment facilities.
The rule was put in place in 1965 to discourage states from “warehousing” children and adults with mental illness in locked facilities segregated from their communities.
The history of Medicaid spending on residential foster care is a murky one. Despite Medicaid being walled off from use in most centers with more than 16 beds, the worst kept secret in the field is that child welfare systems across the country have used the entitlement anyway. And the Centers for Medicare and Medicaid Services, the small and notoriously overwhelmed agency tasked with overseeing Medicaid and Medicare, simply had not enforced the IMD exclusion when it came to foster care.
The National Association for Children’s Behavioral Health once hired a former Congressional staffer to try and assess the amount of Medicaid funding that was spent on health services in congregate care.
“We gave her a down payment retainer, sat down with her, explained the situation, said, ‘This is where we think you should look,’” the association’s former policy director, Pat Johnston, told The Imprint in 2019. “A month later she told us, ‘This is impenetrable.’”
It all became even murkier when the Family First Prevention Services Act was signed into law in 2018. A key aim of Family First was to reduce the foster system’s reliance on group care. It limited the use of the federal child welfare entitlement program, Title IV-E, for group care to just two weeks, with a few notable exceptions. One of those exceptions is a placement into a QRTP, which are supposed to be accredited, have nursing staff on call, and plan with families for a path out of residential care for the child.
Youth can be kept in QRTPs with federal IV-E support past the two-week limit as long as a judge continues to sign off; after 12 months, the state child welfare director must directly approve a continuation as well.
All of a sudden, there was a class of congregate care established in federal law that exists to serve youth in acute health crises. And the Department of Health and Human Services made clear quickly that these QRTPs would not be included among psychiatric centers and hospitals as an exception to Medicaid’s IMD rule.
This bill would reverse course there, clearing access to Medicaid dollars for Qualified Residential Treatment Programs.
“No child should lose access to critical mental health care because of a bureaucratic definition,” Bilirakis said in a press release. “Most children who enter the foster care system have already experienced unimaginable trauma. The last thing we should do is put up barriers to the care that can help them heal. This legislation ensures continuity of care in the settings best equipped to meet their needs.”
But advocates who have long fought for foster youth to be raised in families and kept out of institutions say this bill would be an investment in the wrong side of the system.
“This bill would move us backwards by making institutional care more available and proposing no investments in community and family based care,” said Jenny Pokempner, senior policy director at the Oakland-based Youth Law Center.
Pokempner pointed to a recent report from the Government Accountability Office that found that, by and large, Family First’s goal of decreasing congregate care has not been achieved. More than half of states say they have just as many youth in group care — if not more — than before Family First’s reforms. The number of foster youth in congregate settings nationwide has held steady at 40,000 since Family First’s enactment in 2021, despite the overall foster care population declining.
“If this is a problem we are confronting, H.R. 8095 in no way addresses this challenge, but instead would facilitate further growth of institutional care,” she said.
She also noted that the title of the bill, Ensuring Medicaid Continuity for Children in Foster Care Act of 2026, is misleading. Foster children are categorically eligible for Medicaid and do not lose coverage regardless of placement; the IMD rule prohibits facilities of a certain size from billing Medicaid for treatment provided there.
Versions of this bill have repeatedly been introduced, and failed, since 2021. In his first term, President Donald Trump included a proposed exemption in his 2020 budget.
Why would it pass now after being shot down for years? A spokesperson for Bilirakis said the congressman is encouraged by Trump’s focus on foster care reform this year, and thinks his bill is well-aligned with the administration’s priorities.
This resurfacing of the bill occurs against the backdrop of years of worsening mental health among youth and a proven inability for the current health care system to meet the growing need. This could, perhaps, leave lawmakers keen to remove barriers for youth in foster care to access high-level treatment.
On the other hand, the result of this change would mean a huge increase in Medicaid costs. Some health care policy experts think that will be a nonstarter at a time when H.R. 1 is slashing federal Medicaid spending.
There isn’t a public estimate yet for how much this bill would cost Medicaid. When Trump proposed this change as part of his 2020 budget, it was estimated that making QRTPs Medicaid-eligible would increase Medicaid spending by $500 million over ten years.
While not specific to QRTPs, the Congressional Budget Office estimated in 2023 that broad changes to the IMD rules — making Medicaid available for most mental health institutions — would cost $33.5 billion over a decade.
Adrienne Shilton, senior vice president of public policy and strategy at the California Alliance of Child and Family Services, said the bill is vital to making sure states can provide the mental health care youth in their foster systems need.
The fallout of the IMD rule has been clear in California, where Shilton’s organization represents residential youth providers, and home to the largest foster care population in the country. Before the Family First Act, many of the states’ therapeutic residential programs were regularly billing Medicaid. Since the advent of the federal QRTP designation, she said, every single one of their members had to downsize in order to stay under the bed-count limit to remain eligible for Medicaid.
Between that and other challenges to the industry, California has lost roughly 4,000 youth residential treatment beds, she said — just as the need for such care was going up. Only about 1,400 beds remain available statewide.
“The IMD rule was a big one that contributed to a loss,” she said, noting that she just heard from another member provider that they’ll be closing this summer. “Where are kids going to get their needs met? It really worries us.”
She hopes that opening up the Medicaid funding stream will allow providers to rebuild some of that lost capacity “so we don’t keep hearing about kids who are waiting in hotels, and child welfare offices for services.”
But for some in the field who supported the QRTP model’s development, including the American Academy of Pediatrics, keeping facilities small is key.
“Individualized, trauma‑informed care is essential — something that is very difficult for large facilities to replicate,” said Valerie Smith, a Texas-based pediatrician and member of the AAP Committee on Federal Government Affairs. “We want to be sure that treatment is tailored to the young person’s specific needs and is time-limited, with a plan to return to community. It is really important that we not conflate treatment options with placement options.”
Not addressed in this bill is the shortage of quality community-based mental health services available to either keep the behavioral health needs of youth from spilling over into foster care, or stay in home settings if they are in the system. When a panel of experts was assembled by Texas to advise on the state’s crisis with children living in offices and hotels, one of its main recommendations was along these lines:
“As in most states, the availability of intensive home-based mental health services for children in Texas is inadequate. Because of this, children with high mental health needs who otherwise could live with family or in family-based settings, attend their neighborhood school, and lead a normal life are too often moved to distant placements where they have less contact with siblings and parents, live in a restrictive environment, change placements frequently, and sometimes find themselves without any placement at all.”
In New York, the nonprofit litigator Children’s Rights sued the state over its failure to provide enough community-based Medicaid services for youth, leading to high demand and long wait lists for costly residential care. The state settled with Children’s Rights in January.
