Braiding the Safety Net: How States Are Financing Behavioral Health Crisis Systems Through Strategic Fund Coordination
Paul Galdys, MBA, CPRP
Executive Principal Consultant
Behavioral health crisis systems across the nation face a fundamental tension: the services people need in their most vulnerable moments, 988 call centers, mobile crisis teams, and crisis receiving and stabilization centers, must be available around the clock, regardless of who walks through the door or what insurance coverage they carry. Yet the funding to support these services arrives through a patchwork of sources, each with its own rules, reporting requirements, and allowable uses.
This is where braided funding becomes essential. States that have built robust, responsive, and sustainable crisis systems have learned to weave together Medicaid, federal block grants, state general funds, commercial payer contributions, and local levies into coordinated financing strategies. Done well, braiding creates sustainable crisis infrastructure that serves everyone without excessively burdening local taxpayers. Done poorly, it creates administrative chaos, coverage gaps, and burned-out providers struggling to survive financially.
What Braided Funding Actually Means
Braided funding refers to the practice of combining multiple funding streams to support a unified program or service while maintaining separate accounting and compliance tracking for each source. Unlike blended funding, where dollars lose their identity once pooled, braided funding keeps each stream distinct from planning through service delivery, reimbursement, and reporting.
For behavioral health crisis systems, this distinction matters enormously. A crisis stabilization unit might serve a Medicaid enrollee at 2 a.m., an uninsured individual at 6 a.m., and someone with commercial coverage by noon. Each encounter draws from a different funding source, but the service itself remains consistent. The unit doesn’t turn people away based on payer status because braided funding makes it possible to serve all by ensuring revenue flows from the appropriate source to cover care for each individual served.
The core funding streams states typically braid for crisis services include:
Medicaid remains the largest payer for behavioral health services nationally and often serve as the primary source of funding for crisis services since Medicaid enrollees represent the highest utilizers of mobile crisis as well as crisis receiving and stabilization services in expansion states.
SAMHSA Block Grants, specifically the Community Mental Health Services Block Grant and the Substance Abuse Prevention and Treatment Block Grant, provide flexible federal dollars that can fill gaps Medicaid doesn’t cover, including services for uninsured individuals or populations not eligible for Medicaid.
State General Funds often serve as the glue holding crisis systems together, covering costs that federal sources won’t reimburse and providing the non-federal match required for Medicaid programs.
Commercial Payers are increasingly expected to contribute their share, particularly as states enforce mental health parity requirements and negotiate crisis service coverage into contracts.
Local Levies and Taxes have emerged as significant funding sources in some jurisdictions, with counties or special taxing districts generating dedicated revenue for behavioral health crisis care services.
How States Are Making Braided Funding Work
Several states offer instructive examples of coordinated crisis financing.
California’s CalAIM Initiative has created new pathways for braiding Medi-Cal (the state’s Medicaid program) with non-Medicaid funding sources. Through Enhanced Care Management and Community Supports, the state enables health care and social service organizations to combine Medi-Cal reimbursement with county behavioral health dollars, grants, and other funding streams to deliver integrated crisis care services. Organizations participating in CalAIM have developed sophisticated approaches to braiding, including assigning one primary funding source per client while using multiple funding sources to support staff capacity.
Arizona has long operated one of the nation’s more expansive crisis systems through its Regional Behavioral Health Authorities. The state braids Medicaid managed care funding with state general funds, SAMHSA block grant dollars, and even county funding for involuntary care to support a crisis continuum that includes 988 crisis line operations, mobile crisis teams, as well as crisis receiving and stabilization services. Arizona’s system serves anyone experiencing a crisis regardless of insurance status through a braided funding model that ensures providers having a funding source to bill for every individual served.
Colorado’s legislature recognized the complexity of funding crisis care when passing SB25-042 which requires an analysis of potential crisis care funding options on the state and federal level. Colorado also applies an example of how a statewide retail delivery fee from SB21-260 is used to support their statewide transportation infrastructure needs. Locally-generated revenue can be used to supplement Medicaid, Medicare, commercial insurance, and SAMHSA block grant funding, providing a sustainable base that doesn’t depend entirely on annual appropriations to maintain operations. The state also created a 988 Crisis Hotline Enterprise under SB21-154 that results in a 988 surcharge on phone lines of up to $0.30 per month per line.
Common Pitfalls and How to Avoid Them
States and providers that have attempted braided funding strategies consistently identify several challenges.
Misaligned eligibility and documentation requirements across funding sources create administrative burden that can overwhelm providers. Medicaid may require one set of clinical documentation standards, block grants another, and commercial payers yet another. Organizations successful at braiding invest heavily in electronic health record systems and billing infrastructure capable of tracking payer-specific requirements and generating appropriate documentation for each funding source.
Supplantation concerns require careful navigation. Federal block grant funds generally cannot supplant (replace) state or local funding that would otherwise be spent on services. States must demonstrate that federal dollars are expanding or enhancing services rather than simply backfilling existing state commitments. This requires meticulous tracking of funding flows over time.
Cash flow timing mismatches can destabilize organizations. Medicaid typically reimburses on a claims basis after services are rendered, while block grants may arrive as advance payments on a quarterly schedule, and local levy funds might flow annually. Organizations must maintain working capital sufficient to bridge these timing gaps which is particularly challenging for not-for-profit organizations that cannot draw on private equity to address cash flow issues.
Losing the “no wrong door” principle represents perhaps the greatest risk. If funding complexity leads providers to screen for coverage before delivering services, the crisis system fails in its fundamental aspiration to deliver care to those in need when and where they need it. Successful braided funding models ensure that the clinical response to a person in crisis never waits for insurance coverage verification. Could you imagine EMS waiting to engage until insurance coverage is verified or waiting outside the hospital emergency department doors until it is determined your insurance is adequate for admission?
Building Alignment Across Funding Streams
Effective braiding requires intentional alignment at the state policy level. States that have built strong crisis systems typically establish:
Unified service definitions that apply across payers. When Medicaid, block grant programs, and commercial contracts all define “crisis stabilization” the same way, providers can deliver consistent services and bill the appropriate payer without modifying their clinical approach. SAMHSA’s 2025 Model Definitions for Behavioral Health Emergency, Crisis, and Crisis-Related Services offers language to support states in this work.
Coordinated rate-setting that provides adequate as well as reasonably consistent reimbursement across funding sources positions systems for sustainability. Significant rate disparities between Medicaid, state behavioral health, and commercial payers for identical services create incentives that work against equitable access.
Shared outcome metrics that satisfy multiple funders’ reporting requirements through a single data collection effort. When Medicaid managed care organizations, state behavioral health authorities, and county funders agree on common quality measures, provider burden decreases substantially.
Designated crisis system administrators, whether at the state or regional level, who can negotiate funding arrangements, coordinate reporting requirements, and troubleshoot conflicts between funding streams are well positioned to focus on the multitude of listed issues that contribute to crisis system instability.
Parity Enforcement and Commercial Payer Participation
A complete braided funding strategy cannot rely solely on public dollars. Commercial payers, including employer-sponsored plans and individual market coverage, serve a significant portion of the population and must contribute their share to crisis system financing.
The Mental Health Parity and Addiction Equity Act requires that coverage for behavioral health services, including emergency behavioral health crisis care, be no more restrictive than coverage for medical and surgical services. Yet enforcement has been uneven, and many commercial plans have historically carved out or limited crisis stabilization benefits.
States are beginning to use their regulatory authority more assertively. Some have enacted state parity laws that exceed federal requirements, mandated coverage of specific crisis services like mobile crisis intervention or required commercial plans participating in state employee benefit programs or Medicaid managed care to cover crisis services at specified levels.
Incorporating commercial payer revenue into braided funding models requires both regulatory pressure and operational infrastructure. Crisis providers need contracts with commercial payers, credentialing for their clinical staff, and billing systems capable of submitting commercial claims; representing investments that may be new for organizations historically reliant on grant funding.
Toward Sustainable Crisis Systems
Braided funding is not a one-time project but an ongoing practice requiring continuous attention as funding sources shift, policies change, and service needs evolve. The states making the greatest progress treat crisis system financing as a strategic priority, dedicating staff to funding coordination and investing in the data and billing infrastructure that makes braiding operationally feasible.
The goal is a system where anyone experiencing a behavioral health crisis receives timely, appropriate care and where the complex work of matching services to funding sources happens invisibly, behind the scenes, without ever delaying or diminishing the human response to someone in need.
Resources
2025 Model Definitions for Behavioral Health Emergency, Crisis, and Crisis-Related Services – Model Definitions for Behavioral Health Emergency, Crisis, and Crisis-Related Services
Parity Action Plan for Emergency Behavioral Health Crisis Care – Parity Action Plan for Emergency Behavioral Health Care
Sustainable Funding for Mental Health Crisis Services – RIInternational_CrisisCodingDocuments_v15hk
Office of the Assistant Secretary for Planning and Evaluation – Affordable Care Act Expands Mental Health and Substance Use Disorder Benefits and Federal Parity Protections for 62 Million Americans | ASPE
About the Author
Paul Galdys has more than 35 years of experience in the mental health, intellectual/ developmental disabilities, and substance use treatment field. Currently an Executive Principal Consultant with Recovery Innovations and a member of CIT International’s Board of Directors, past work includes overseeing crisis care operations in 10 states, Assistant Director with the Arizona Department of Health Services as well as Assistant Director in Arizona Medicaid. He’s a cited contributor to SAMHSA’s 2020 National Guidelines for Behavioral Health Crisis Care – A Best Practice Toolkit, National Guidelines for a Coordinated System of Crisis Care and Model Definitions for Behavioral Health Emergency, Crisis, and Crisis-Related Services.
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