When Your Insurance Reviews Your Therapy

A medical necessity review is when your insurance company evaluates whether your mental health treatment meets their criteria for "medically necessary" care. This is one of the most common ways insurers manage costs while trying to ensure that covered services are clinically appropriate.

In simple terms, insurance doesn't pay for therapy just because it's helpful or you want it—they pay for therapy when it's treating a diagnosable mental health condition and helping you function better in daily life.

What "Medically Necessary" Typically Means

• • You have a diagnosable mental health condition (DSM-5 diagnosis like Major Depressive Disorder, Generalized Anxiety Disorder, PTSD, etc.)
• • Your symptoms cause significant functional impairment (affecting work, school, relationships, self-care, or safety)
• • The treatment is clinically appropriate based on accepted standards of care
• • The treatment is expected to improve your condition or prevent deterioration
• • The level of care (outpatient therapy) is the least intensive setting appropriate for your needs

What Is Typically NOT Considered Medically Necessary

• • Personal growth, life coaching, or general wellness counseling without a diagnosable condition
• • Therapy after you've reached "maximum therapeutic benefit" or full remission
• • "Maintenance therapy" when symptoms are stable and no longer impairing function
• • Treatment for conditions explicitly excluded by your plan

1. Diagnostic Justification

What they check:

• • Is there a valid DSM-5 diagnosis documented?
• • Does the diagnosis code match the treatment provided?
• • Is the diagnosis one the plan covers?

Example: A claim for therapy with only a "Z-code" (life circumstance code like Z63.0 "relationship distress") may be denied because Z-codes don't represent mental disorders—they describe problems that may be a focus of clinical attention but aren't diagnoses.

2. Functional Impairment

What they check:

• • How do your symptoms affect your daily functioning?
• • Can you work? Attend school? Maintain relationships? Care for yourself?
• • Are there safety concerns?

What they want to see documented:

• • Specific examples: "Patient has missed 5 days of work this month due to panic attacks"
• • Measurable impairments: "Patient reports PHQ-9 score of 18 (moderately severe depression)"
• • Changes over time: "Patient's GAD-7 score decreased from 15 to 9 over 8 weeks"

3. Treatment Goals and Progress

What they check:

• • Are there specific, measurable treatment goals?
• • Is the patient making progress toward those goals?
• • If progress has plateaued, is there a clinical rationale for continuing therapy?

SMART Goals: Insurers increasingly expect goals to be Specific, Measurable, Achievable, Relevant, and Time-bound.

4. The "Lack of Progress" Trap

One of the most common denial reasons is CO-50: Lack of Medical Necessity, often citing "lack of progress" or "maintenance care."

The problem: Insurers may deny coverage if:

• • Symptom scores (PHQ-9, GAD-7, etc.) haven't improved after a set period (e.g., 3-6 months)
• • Symptoms have improved significantly and the patient is stable

The catch-22:

• • If you don't improve, they say therapy isn't working
• • If you do improve, they say you're "cured" and don't need more therapy

What to do: Your therapist should document:

• • Why progress may be slower (complex trauma, comorbid conditions, social circumstances)
• • That therapy is preventing relapse or managing chronic symptoms
• • Specific risk of deterioration if therapy stops

Step 1: Understand Why

Request a detailed written explanation of the denial, including:

• • The specific denial code (e.g., CO-50 for medical necessity)
• • The clinical criteria used
• • What evidence was lacking or insufficient

Step 2: Review Your Rights

Under federal law and most state laws, you have the right to:

• • Internal appeal: Ask your insurer to reconsider the decision
• • External review: Have an independent reviewer evaluate the case if the internal appeal fails
• • Expedited appeals: If your health could be seriously jeopardized by waiting

Timeline for appeals:

• • Internal appeal: You typically have 180 days from the denial date to file
• • Insurer's response: They must respond within 30 days (standard) or 72 hours (urgent)
• • External review: Available after internal appeal is exhausted or simultaneously for urgent cases

Step 3: Gather Support

Work with your therapist to:

• • Request a peer-to-peer review if not already done
• • Get a clinical support letter explaining why treatment is medically necessary
• • Document functional impairment and progress (or why progress is slower than expected)
• • Reference any safety concerns or risk of deterioration

Step 4: File an Appeal

What to include in your appeal letter:

• • Your identifying information (name, member ID, claim number)
• • Clear statement that you're appealing the denial
• • The specific service denied (e.g., "outpatient psychotherapy, CPT 90834")
• • Why you believe the denial is wrong (clinical necessity, parity violation, etc.)
• • Supporting documentation from your therapist
• • Request for specific action (approve X additional sessions, cover Y service)

Step 5: Consider External Review

If your internal appeal is denied, you can request an external review by an independent review organization (IRO).

Key points:

• • The IRO's decision is binding on the insurer
• • You typically have 60 days after the internal appeal denial to request external review
• • External reviews are particularly strong for medical necessity denials and experimental/investigational denials
• • Many states report that external reviewers overturn insurer denials 30-50% of the time

Step 6: File a Complaint

If you believe your denial violates mental health parity laws or represents unfair practices:

• • Maryland residents: File with the Maryland Insurance Administration (MIA). The MIA has recovered over $42 million for consumers in 2025 through enforcement actions.
• • Employer plans (ERISA): File with the U.S. Department of Labor at 1-866-444-3272
• • Marketplace plans: File with CMS or your state insurance department

Federal Protections

Under MHPAEA and the Consolidated Appropriations Act of 2021:

• • Medical necessity criteria for mental health must be comparable to criteria for medical/surgical care
• • Insurers cannot apply concurrent review more stringently to mental health than to physical health
• • You have the right to request a comparative analysis showing how the plan applies medical necessity reviews to mental health vs. medical care

Maryland-Specific Protections

Maryland residents have additional rights:

1. HB 848 / SB 474 (Adverse Decisions Act, effective 2025):

• • Insurers must provide detailed reasons for adverse decisions
• • Utilization review agents must:
  • Maintain dedicated phone/email for utilization review
  • Respond within specified timeframes
  • Post utilization review criteria on member and provider websites

2. Maryland Insurance Administration (MIA) oversight:

• • The MIA actively enforces parity laws
• • Consumer complaints trigger investigations
• • The MIA has strong consumer protection authority

How to Identify Parity Violations

Ask these questions:

• • Does your plan require more frequent reviews for mental health than for comparable ongoing medical treatment (physical therapy, cardiac rehab, diabetes management)?
• • Does your plan have stricter medical necessity criteria for mental health?
• • Does your plan deny mental health services for "maintenance care" while covering maintenance care for chronic medical conditions?

If the answer to any of these is "yes," you may have grounds for a parity complaint.