Background: Recent changes to Medicaid policy may have unintended consequences in the education system. This study estimated the potential financial impact of the Deficit Reduction Act (DRA) on school districts by calculating Medicaid-reimbursed behavioral health care expenditures for school-aged children in general and children in special education in particular. Methods: Medicaid claims and special education records of youth ages 6 to 18 years in Philadelphia, PA, were merged for calendar year 2002. Behavioral health care volume, type, and expenditures were compared between Medicaid-enrolled children receiving and not receiving special education. Results: Significant overlap existed among the 126,533 children who were either Medicaid enrolled (114,257) or received special education (27,620). Medicaid-reimbursed behavioral health care was used by 21% of children receiving special education (37% of those Medicaid enrolled) and 15% of other Medicaid-enrolled children. Total expenditures were $197.8 million, 40% of which was spent on the 5728 children in special education and 60% of which was spent on 15,092 other children. Conclusions: Medicaid-reimbursed behavioral health services disproportionately support special education students, with expenditures equivalent to 4% of Philadelphia's $2 billion education budget. The results suggest that special education programs depend on Medicaid-reimbursed services, the financing of which the DRA may jeopardize. (Contains 1 table and 3 figures.)