The Affordable Care Act focused attention on how conflicting rules and payment arrangements in Medicare and Medicaid can produce high costs and fragmented care for people who are dually eligible for the two programs. Nearly half of such dual eligibles have severe and persistent mental disorders. Using Medicare data for the period 2006–09, we examined factors that were associated with high levels of spending for dual eligibles younger than sixty-five with a mental disorder. We found that these beneficiaries were nearly twice (1.86 times) as expensive as young dual eligibles who did not have a mental disorder. We identified functional limitations, multiple chronic conditions, and substance use disorders as being associated with high levels of spending in this subpopulation. We conclude that case management that coordinated medical, mental health, and substance use treatment along with psychosocial rehabilitation services could yield savings, primarily to the Medicare program. Because only Medicaid pays for case management and psychosocial rehabilitation services, Medicaid spending may need to rise if overall savings are to be realized.
