Background. Proposals to enroll Medicaid beneficiaries in health maintenance organizations (HMOs) have raised concerns that community-based mental health treatment programs would be adversely affected. Methods. In Hennepin County (Minnesota) 35% of Medicaid beneficiaries were randomly assigned to prepaid plans. Random samples of individuals with severe mental illness were selected from the prepaid enrollees and from beneficiaries remaining with traditional Medicaid. The two groups were compared with respect to their use of community treatment programs and the write-off (the proportion of patient charges for which payment was not received) experienced by those programs for members of the study sample. Results. There was no strong evidence that Medicaid beneficiaries with severe mental illness who were randomly assigned to prepaid plans used community-based mental health treatment programs differently than did other Medicaid beneficiaries. However, write-offs were consistently higher for enrollees in prepaid plans. Conclusions. In the short run, the use of community-based mental health treatment programs need not be affected by enrollment of Medicaid beneficiaries in prepaid plans, providing that Medicaid program administrators take steps to minimize the disruption of ongoing treatment, offer beneficiaries a choice among prepaid plans, and encourage community treatment programs to contract with plans to serve beneficiaries.