The Affordable Care Act is expected to save Michigan hundreds of millions of dollars annually in mental health costs, but there’s a growing dispute over whether the money should be immediately reinvested in mental health programs, or banked.

As part of major changes associated with the health care overhaul, also known as Obamacare, Michigan opened Medicaid to nearly 500,000 additional residents. That moves their health care costs — including mental health — off the state’s books and onto the federal government’s.

In anticipation of those savings, the state trimmed mental health spending for the current fiscal year by about $75 million, and Gov. Rick Snyder wants to cut it further for the budget year beginning Oct. 1.

But mental health care advocates say some people now getting state-funded mental health services still won’t qualify for Medicaid; many who are newly eligible haven’t signed up; and some mental health services needed by people on Medicaid aren’t covered by the program anyway. They’ll still need to turn to the state for mental health services.

Among those who are worried are agencies that provide adult foster care for people who can’t live on their own, because of severe mental illness or developmental disabilities.

“Our analysis is that the state’s not going to save as much as they think they are,” said Michael Vizena, director of the Michigan Association of Community Mental Health Boards. “Those are general funds that are needed as we transition (to expanded Medicaid).

“We have a number of people who currently access mental health from (state) general funds. We still will need general funds for those people who do not qualify for expanded Medicaid, or for those services that are not funded under Medicaid rules.”

State lawmakers are in the middle of deliberations over the state budget. Senate Appropriations Committee Chairman Roger Kahn, R-Saginaw, said negotiations have become so contentious over mental health funding that he planned to work through the Memorial Day weekend to come up with a plan acceptable to everybody.

While lawmakers are under no obligation to accept his recommendation, the governor has proposed a total mental health budget of $97 million, a reduction of $186 million from 2013.

Snyder wants to save most of the annual mental health care savings under the health care overhaul to cover future Medicaid costs, because the state eventually will have to pay up to 10 percent of the program, starting gradually in 2017.

Last year, the administration estimated this year’s savings at $200 million.

Kahn said the Medicaid expansion is bringing in more people — and therefore more savings for the state — than expected. More than 200,000 people have signed up since April 1.

The administration estimates that the Medicaid expansion will reduce state-paid mental health costs by as much as $260 million in the 2015 budget year that starts Oct. 1.

But local mental health boards disagree. Vizena said his members estimate, based on their actual costs, the boards will need at least $140 million to avoid cutting services.

Said Kahn: “I’m not very sympathetic. I think they’ve got enough money. They’ve been hanging out at my office with their tale of woe. The government is supposed to be a hand up, not a handout.”

Karen Schrock, president and CEO of Adult Well-Being Services, which has clients in adult foster care homes in Detroit, Grosse Pointe, Romulus and other locations, said most people in adult foster care are on Medicaid or expanded Medicaid. But outpatient services must be available in the community if people are to move into jobs and toward independence.

She said people already linger too long in adult foster care, and some may be forced to stay longer if outpatient services are trimmed further.

Alan Brown, 63, lived in adult foster care for almost three years because of a mental health condition, but was able to become independent with the help of community-based mental health services that depend in part on state financial aid. Brown now works for Adult Well-Being Services, as a “peer counselor” to people living in adult foster care.

“I never wanted to live in an adult foster care home forever. I had other things I wanted to do with my life,” Brown said.

Michael Garrett, president and CEO of Community Network Services of Oakland County, said many community mental health agencies have not yet received any money from the Medicaid expansion.

“We’ve been able to bridge the gap with other funds we have available, and those funds are quickly dwindling,” Garrett said. “If the (state) dollars don’t begin to flow, there will be cuts.”

Garrett is particularly worried about care for mentally ill people who might not qualify for the Medicaid expansion, but depend on state-funded programs for their medications.

“A lot of people we serve are on medication,” Garrett said, “and there could be a scenario where certain people will not be able to get their prescriptions filled.”