March 27, 2026  – New York lawmakers are weighing a significant policy shift that could reshape how behavioral health services are delivered under Medicaid. A newly introduced proposal would remove certain mental health and substance use disorder services from managed care plans and return them to a traditional fee-for-service system.

The legislation, introduced as Senate Bill S8309A and Assembly Bill A8055A, aims to carve out community-based behavioral health services, including outpatient, residential, and rehabilitation programs, from Medicaid managed care. If approved, the change would mark a reversal of a decade-old policy that placed responsibility for these services with managed care organizations. 

Supporters of the proposal argue that the current system has led to delays in care and payment issues for providers. Since 2015, managed care plans have overseen the delivery and coordination of behavioral health services for Medicaid beneficiaries. Prior to that, the state managed these services directly through agencies such as the Office of Mental Health and the Office of Addiction Services and Supports, using a fee-for-service reimbursement structure. 

The New York State Council for Community Behavioral Healthcare, along with more than 20 other provider and advocacy organizations, has been pushing for the change. The group represents approximately 175 community-based providers and has raised concerns about the performance of managed care in this area.

According to the Council, the current model allows managed care organizations to delay or deny payments to providers while still retaining funds intended for care delivery. Advocates say this has contributed to longer wait times and reduced access to services for Medicaid beneficiaries. 

The proposal also has financial implications. Estimates suggest that shifting back to a fee-for-service model could allow the state to redirect up to $400 million annually toward improving access to care, supporting provider organizations, and addressing workforce shortages. 

Opponents, however, caution that returning to a fee-for-service model could create new challenges, including reduced care coordination and less oversight of service utilization. Managed care organizations have traditionally been tasked with coordinating care across providers and managing costs.

The proposed carve-out was not included in the governor’s initial budget proposal, but advocacy groups continue to urge lawmakers to adopt the measure during final budget negotiations. If approved, the transition would also require federal approval due to Medicaid’s joint state-federal structure.

As discussions continue, the debate reflects broader questions about how best to deliver behavioral health services within Medicaid. Policymakers must weigh the potential benefits of improved access and provider stability against the risks of shifting away from managed care.

For now, the proposal remains under consideration, with stakeholders on both sides closely watching how the state moves forward.