California Plans Deny Mental Health Claims Despite New Law

Bloomberg Law

By Tiffany Stecker

Dec. 21, 2022

More than two years after California passed a law to require more comprehensive mental health coverage, health insurance companies still appear to regularly deny claims for medically necessary treatment, a survey of state data shows.

California regulators reversed 65% of contested claims for mental health coverage in the last two years, according to a Bloomberg Law analysis of data from the Department of Managed Health Care and the Department of Insurance. Health plans reversed their own initial decisions for another 10% of those claims.

Gov. Gavin Newsom (D) signed the law (S.B. 855), intended to stop health plans from refusing to pay for necessary treatment, as pandemic-related depression and anxiety soared. In a Kaiser Family Foundation poll at the time, about 53% of adults reported worsening mental health due to worry and stress over the coronavirus.

As pandemic troubles wane, the country’s mental health crisis persists. The American Psychological Association’s Fall 2022 survey of nearly 63,000 licensed psychologists found consistently high demand for anxiety and depression treatment and rising demand for trauma and substance use disorders.

The 2020 law says California health plans must provide the same coverage for treatment of mental health and substance use disorders as they do for physical problems. Coverage decisions on services or products that prevent, diagnose, or treat those mental health conditions or their symptoms must be made according to “generally accepted standards.” The law went into effect in 2021.

California plans are now required to use criteria developed by four nonprofit associations to make coverage decisions rather than rely on their own internal guidelines. The groups that wrote the criteria say many plans still don’t use them.

“The implementation has been spotty,” said Kenneth Minkoff, a psychiatrist who helped develop the American Association for Community Psychiatry’s criteria to determine the level of care in adult mental health disorders. “Not all companies are using the tools.”

Minkoff and Michael Flaum, the immediate past president of the psychiatry association, said they expected to meet with 42 health plan providers to train staff on applying the criteria. At least one-third of companies never contacted the association, they said in an interview.

The American Society of Addiction Medicine, the American Academy of Child and Adolescent Psychiatry, and the World Professional Association for Transgender Health also set guidelines for medical necessity that California health plans must adhere to under S.B. 855.

The associations were tasked with writing objective criteria, a somewhat elusive target in the mental health field. Unlike medical conditions in which objective tests can determine the necessary care, mental health “seems to rely more on the judgment of the individual providers,” said Glenn Melnick, a professor of health-care finance at the University of Southern California.

Small Percentage

The contested claims in 2021 and 2022 make up a minuscule fraction of all Californians covered by private health insurance—less than one-hundredth of 1%, according to Mary Ellen Grant, spokeswoman for the California Association of Health Plans.

“Instead of focusing on this tiny percentage of claims denials, the vast majority of which have no impact on patient care, perhaps the focus should be on the fact that the overwhelming majority of mental health and substance use disorder services have and are being covered,” she said. The association represents 44 full-service health-care plans that provide coverage to more than 26 million Californians.

The disputed claims could hint at a much larger problem, hidden by the fact that many people who face denials never challenge their plan’s decisions.

“The magnitude of this problem is far greater because this is the small set of folks that appeal,” said JoAnn Volk, co-director of the Center on Health Insurance Reforms at Georgetown University’s McCourt School of Public Policy.

Nationwide, about 150,000 behavioral health claims in Affordable Care Act plans were denied because insurance companies deemed them not medically necessary, about one-fifth of the total medical necessity claims, according to a 2020 Kaiser Family Foundation survey.

Grant, of the California Association of Health Plans, said the data on contested claims include those that are wrongly sent to the health plan instead of the provider group, claims that are submitted to the wrong health plan, duplicate claims, or claims that lack complete information.

“None of these reasons impact care,” she said.

‘Comforting’

Still, patients are fighting plan denials through state regulators. In three-fourths of cases, they’re winning, either with regulators or the plans themselves. The state independent reviewers upheld just one-quarter of the health plans’ decisions in 2021 and 2022. The Department of Managed Health Care, which oversees HMOs like Kaiser Permanente, handles over 90% of the disputes.

The 934 people who appealed their denied claims to California’s insurance regulators sought coverage for services like inpatient substance use treatment or breast augmentation for those experiencing gender dysphoria.

Almost half of the challenges were over denied coverage of residential treatment centers, in which patients board at a home for a set period of time to receive treatment for drug addiction or other mental health ailments.

“These are high-cost services, for sure,” said Nikole Benders-Hadi, a licensed psychiatrist and medical director for digital health firm Included Health. Add in multiple sub specialists and ever-changing care needs and “that’s going to increase the overall cost of care as well.”

Health plans have made progress in the past two years. In 2020, the year before S.B. 855 went in effect, over 71% of independent medical reviews from the Department of Managed Health Care were overturned. In the first year of the law’s implementation, that rate went down to 62%, said Kevin Durawa, senior media officer with the agency.

To Flaum, one of the psychiatrists who helped develop the criteria, the number of reviews and the rate of overturned decisions indicate that the system is working.

“Those data did not strike me as problematic, those data struck me as sort of comforting,” he said.