Background: People living in rural communities experience significant barriers accessing mental health care, including a shortage of psychiatrists and other behavioral health specialists. Telemedicine has the ability to improve access for these populations by allowing psychiatrists in urban settings to treat rural patients over video. However, start-up costs may hinder implementation of new tele-psychiatry programs. Materials and Methods: We created a model to estimate the point at which tele-psychiatry would financially break even based on estimates of improved access to outpatient care for people with schizophrenia and bipolar disorder. We demonstrate how our model can be used with an example of a tele-psychiatry program serving five rural Indian Health Services clinics in California. Results: When reimbursement for psychiatric services provided over telemedicine is relatively low compared to reimbursement for hospitalization visits, changes in the ratio of hospitalizations to telemedicine visits have very little impact on required hospitalization improvement. Conclusions: Tele-psychiatry programs are likely to break even within the first three years when providing psychiatry services to a rural community with a scarcity of mental health services. Our findings are important because they indicate that the cost of improving access to tele-psychiatry services is likely low compared to the potential cost savings associated with reduced hospitalizations for people with severe persistent mental illness.