What Your Health Insurance Covers for Mental Health—and What It Doesn’t

If your mental health claim is denied, you have the right to appeal and contact your state insurance regulator or CMS if necessary.

Federal law requires mental health benefits to be treated similarly to medical coverage. Ei Ywet/Shutterstock

In 2022, mental illness in the United States was estimated to affect more than one in five adults, according to the National Institute of Mental Health (NIMH). That means 23.1 percent of adults 18 and older have a mental illness.

Mental health is just as important as physical health. But although most health insurance companies have some coverage for mental illness, not all treatments are covered. Let’s take a look at what’s covered and what’s considered an out-of-pocket cost.

Mental and Behavioral Health Services Considered Essential Benefits

The Affordable Care Act (ACA) mandated that mental health and behavioral services be considered essential health benefits.

It required most individual and small employer health insurance plans, including plans offered through the Health Insurance Marketplace, to cover mental health and substance use disorder services. Coverage must also be provided for services to help support people with behavioral health challenges.

Health Insurers Must Provide Mental Parity

The Mental Health Parity and Addiction Equity Act, passed in 2008, generally prevents group plans and health insurance issuers that provide mental health or substance use disorder benefits from imposing less favorable benefit limitations on those benefits than on medical or surgical benefits.

This means that financial requirements such as coinsurance, co-pays, and treatment limitations for mental health and substance use disorder benefits can’t be more restrictive than those applied to substantially all medical or surgical benefits in a classification.

In other words, the act requires that insurance companies treat mental and behavioral health and substance use disorder equal to (or better than) medical and surgical coverage.

This act was also called the mental health parity law or the federal parity law.

The legislation, which was originally applied to group health plans and group health insurance coverage, was amended by the ACA to apply to individual health insurance coverage.

And although health insurance carriers must provide parity, it doesn’t prohibit the insurance company from implementing limits related to “medical necessity.”

Health Plans Subject to and Not Subject to Federal Parity Law

According to the American Psychological Association, plans that must follow the the federal parity law are generally as follows:

• employer-sponsored health coverage (companies with 50 employees or more)
• coverage purchased through health insurance exchanges (Affordable Care Act)
• Children’s Health Insurance Program
• most Medicaid programs, although requirements may vary from state to state

Medicare is not subject to the federal parity law. However, despite this, Medicare does have coverage for both in-patient and out-patient services.

Some state government employee plans may opt out of the parity requirements.

Mental Illness as a Pre-Existing Condition

The ACA required that all marketplace plans cover mental illness and substance abuse services. This included pre-existing conditions. In addition, marketplace plans cannot charge coverees more because of a mental illness or substance use disorder or limit benefits.

Most private health insurance companies come under this ACA requirement. They cannot refuse coverage or charge more for a mental illness, substance disorder condition or behavioral health for you, or your dependent.

It also cannot limit benefits for that condition either.

When Treatment Is Denied by Health Insurance

According to the National Alliance on Mental Illness, mental illness or substance use disorder treatment can be denied by health insurance companies for several reasons. Companies use various methods to determine whether a type of treatment is medically necessary. The treatment must also be part of your benefit and meet a specific criterion. The requirements are similar to medical requirements.

Medical Necessity Criteria

Treatments or health care supplies recommended by your mental health provider must be reasonable, necessary and appropriate. Only if the treatment meets these standards is the care considered medically necessary.

Utilization Review Necessary

A utilization review is the process used by insurers to decide whether a request is medically necessary, efficient, and in line with accepted medical practices. In other words, the mental health treatment or service has been proven effective by scientific evidence.

Prior Authorization Requirement

Prior approval or pre-certification is a type of utilization review. To have prior authorization, your service provider must ask for approval before the health insurer will agree to pay for a service, treatment, or prescription drug.

Often as part of prior authorization, you must use step therapy. This is when you try a less expensive prescription drug or service before moving on to more expensive ones.

Treatment or Services That Insurance Companies Commonly Deny

According to the National Alliance on Mental Illness, some types of mental illness treatment or service are denied at higher rates than other health conditions. One of these is residential treatment for mental illness.

Intermediate levels of care are sometimes denied. These include psychological rehabilitation, partial hospitalization, intensive outpatient treatment, and assertive community treatment.

Office based diagnostic and treatment interventions, including diagnostic assessments like standardized tests, are typically denied.

Check Your Insurance Policy

Checking your health insurance policy or contacting your insurer might save you money down the road. This will let you know for sure what services are covered before you receive them.

Work with your provider to ensure that the prior authorization requirements are met.

But if you are denied a claim, use your right to appeal. If you don’t receive the answer you feel you deserve, contact your state insurance division.

If you feel your insurance company is not following the Mental Health Parity and Addiction Equity Act, contact the Centers for Medicare and Medicaid Services.

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