Although direct financing mechanisms are discussed, the main focus of the report is on insurance coverage for drug abuse. Specific attention is paid to differences between public and private insurance mechanisms. The author notes that private insurance coverage for drug abuse treatment is quite limited. Among employees of medium and large firms, for example, only slightly more than half of plan participants have coverage for both detoxification and rehabilitation phases of drug treatment. Since smaller firms tend to have less generous health insurance benefits, the overall availability of insurance for drug treatment services in the private sector is even less. Among those with coverage, limitations typically exist on the amount of treatment that can be received per year or per lifetime. Since drug abuse is a chronic condition, this implies that benefits are easily exhausted. Public insurance coverage for drug abuse treatment consists of three large programs (Medicaid, Medicare, and CHAMPUS). Medicaid is a program for certain categories of low-income persons; Medicare is for the blind, aged, and disabled; and CHAMPUS is for military retirees and their dependents. The programs with the most generous benefits, Medicare and CHAMPUS, are also the programs with the most restrictive eligibility requirements. Among public programs, Medicaid has the least generous drug treatment benefits. Its eligibility requirements exclude a large fraction of the drug- abusing population; in particular, males between 22 and 64 years of age are likely to not have coverage. Benefit structures of public and private insurance differ considerably. Whereas private plans tend to limit benefits, thereby controlling the demand for treatment services, public insurance tends to restrict providers. Options available to policymakers to increase the availability of insurance coverage for drug abuse are examined. Supplemental information on Medicaid, Medicare, and CHAMPUS is appended. 32 references, 6 tables, and 5 figures