California plans reject mental health claims despite new law

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

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

Governor Gavin Newsom (D) signed into law (SB 885) designed to stop health plans from refusing to pay for needed treatment as pandemic-related depression and anxiety soar. In a Kaiser Family Foundation poll at the time, about 53 percent of adults reported worsening mental health due to worry and stress about the coronavirus.

While the pandemic issues are abating, the country’s mental health crisis continues. The American Psychological Association’s fall 2022 survey of nearly 63,000 licensed psychologists found consistently high demand for treatment for anxiety and depression and growing 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 for services or products that prevent, diagnose, or treat these mental health conditions or their symptoms must be made in accordance with “generally accepted standards.” The law entered into force in 2021.

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

“Implementation has been spotty,” said Kenneth Minkoff, a psychiatrist who helped develop the American Community Psychiatric Association’s criteria for determining the level of care for adult mental disorders. “Not all companies use the tools.”

Minkoff and Michael Flaum, a former president of the psychiatric association, said they expect to meet with 42 health plan providers to train staff to implement the criteria. At least a third of the 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 Transgender Health Professional Association also set medical necessity guidelines that California health plans must adhere to under SB 855.

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

Small percentage

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

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

“The scale of this problem is much larger because it’s a small circle of people who like each other,” said JoAnn Wolk, co-director of the Center on Health Insurance Reform at Georgetown University’s McCourt School of Public Policy.

Nationally, about 150,000 behavioral health claims in Affordable Care Act plans were denied because insurance companies deemed them medically unnecessary, about one-fifth of total medical necessity claims, according to a study by the Kaiser Family Foundation from 2020

Grant, of the California Association of Health Plans, said the disputed claims data included those that were wrongly submitted to the health plan instead of the provider group, claims that were submitted to the wrong health plan, duplicate claims or claims that were incomplete.

“None of those reasons have an impact on care,” she said.


Still, patients fight plan denials through state regulators. In three-quarters of cases, they win either with the regulators or with the plans themselves. State independent reviewers upheld only a quarter of health plan decisions in 2021 and 2022. The Department of Managed Health Care, which oversees HMOs like Kaiser Permanente, handles more than 90 percent of the disputes.

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

Almost half of the challenges relate to not allowing coverage of treatment centers where patients stay in their homes for a period of time to receive treatment for drug addiction or other mental illnesses.

“These are certainly expensive services,” said Nicole Benders-Haddy, a licensed psychiatrist and medical director of digital health firm Included Health. Add in multiple subspecialties and ever-changing care needs, and “it will also increase the overall cost of care.”

Health plans have seen progress over the past two years. In 2020, the year before SB 855 took effect, over 71% of independent medical reviews by the Division of Managed Health Care were overturned. In the first year of the law’s implementation, that rate dropped to 62 percent, said Kevin Durava, senior media officer at the agency.

For Flaum, one of the psychiatrists who helped develop the criteria, the number of reviews and the rate of reversals show that the system is working.

“I didn’t find that data problematic, I found that data kind of comforting,” he said.

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