Medical Necessity Standards for Mental Health Parity in California

Abstract

One in six adults in California experience a mental illness, but up to 63% may not receive mental health services (California Health Care Foundation 2018). The treatment gap is even larger for people with substance use disorders (SUDs), and lack of treatment can lead to increased rates of suicide, homelessness, and incarceration (Weiner 2019a). Mental health parity laws require health insurance companies to cover mental and physical health services equally. These laws have helped reduce individual costs for mental health and SUD treatment (Ettner et al. 2016), but recent reports emphasize that California has not yet achieved full parity (Davenport, Gray, and Melek 2019; Parity Track 2019a; Weiner 2019b). Insurers commonly circumvent parity laws when denying behavioral health claims due to lack of “medical necessity,” a determination created by the insurer that lacks sufficient government oversight. We identify three issues with definitions of medical necessity and propose policy solutions that will 1) align medical necessity criteria with current scientific and medical standards, 2) regulate the influence of financial self-interest in assessing medical necessity, and 3) improve transparency of medical necessity criteria to clients. These solutions will help increase access to equitable, client-centered behavioral health care in California.