The IMD CARE Act would allow states to use Medicaid funds to cover mental health treatment for certain patients in psychiatric hospitals and residential mental health facilities, which is currently prohibited under federal law. The bill permits states to provide coverage for up to 30 days per year for individuals aged 21 to 64 who have serious mental illness and are enrolled in Medicaid. To participate, states must maintain current funding levels for community-based mental health services, implement evidence-based placement criteria to ensure patients receive appropriate levels of care, establish transition plans to move patients to community settings, and coordinate with various providers to create a comprehensive mental health service system. The legislation takes effect January 1, 2027, and requires states to report to the federal government on their compliance with these requirements within 12 months of enactment.