Major changes that have occurred in the health care industry include the spread of managed care and medical advances in treatment. The development of policies in response to these changes to improve the provision of cost-effective and accessible mental health and drug abuse treatment requires an understanding of how MHAOD dollars are currently allocated. Statistics are provided on how much the United States is spending nationally to treat mental illness and the abuse of alcohol and other drugs, MHAOD expenditures by provider type, how much different payers spend on MHAOD services, how spending has changed between 1986 and 1996 and in what ways, and how MHAOD expenditures compare to those for all health care. MHAOD treatment expenditures are estimated using data and methods employed by the Health Care Financing Administration for estimates of national health expenditures. National expenditures for MHAOD services totaled $79.3 billion in 1996: $66.7 billion for mental illness, $5 billion for alcohol abuse, and $7.6 billion for other drug abuse. Of the $79.3 billion, $46.9 billion involved treatment by special providers. Hospital settings accounted for the largest share of MHAOD expenditures, the public sector paid for most MHAOD treatment, and MHAOD expenditures represented 8.1 percent of the $942.7 billion in national health expenditures in 1996. This represented a decrease from 1986 when MHAOD expenditures represented 9 percent of total national health expenditures. Appendixes contain a glossary, a list of expert panel members involved in data collection and analysis, and detailed tables of MHAOD expenditure estimates. 21 references, 24 tables, and 15 figures