California Insurers Brace for New Mental Health Coverage Law

Health insurers are making a last-ditch attempt to stop California legislation that would force them to cover more mental health services than ever before.

Advocates say the measure (S.B. 855), which would require coverage of all non-emergency mental health services, would be one of the strongest state mental health parity laws in the country. If signed by the governor, it would close what advocates see as a loophole that allows insurance companies to deny treatment that’s not a “medical necessity.”

“This would be the new gold standard for parity laws,” said Benjamin Miller, chief strategy officer for the nonprofit Well Being Trust.

But the California Association of Health Plans, an industry trade group, and one of the state’s health insurance regulators fear that the bill’s expansive definition of medical necessity would bring a flood of new litigation. The trade group paid for at least $3,000 in Facebook ads over the past two weeks against the measure.

The legislation would bypass grievance procedures for patients and providers by providing direct access to the courts, insurance trade groups told the state Legislature before the bill passed last month. Denied claims for mental health or addiction care already have sparked several class actions nationwide.

The Covid-19 pandemic has made it harder for those with mental health or substance use disorders to cope. About 53% of adults nationwide said their mental health has been negatively impacted due to worry and stress over the coronavirus, up from 32% in March, according to a July poll by the Kaiser Family Foundation.

Gov. Gavin Newsom (D) has until Sept. 30 to sign the bill into law or reject it.

‘Medically Necessary’

All 50 states have laws requiring insurers to cover mental health at the same level as physical health at some level. But many fall short when it comes to covering all mental health and substance use ailments, Miller said.

The measure, by state Sen. Scott Wiener (D), would require insurers to cover medically necessary treatment for all mental health and substance use disorders in the Diagnostic and Statistical Manual of Mental Disorders, a handbook used by health-care professionals around the world.

It also provides a lengthy definition for “medically necessary treatment.” According to the bill, a medically necessary service addresses the specific needs of a patient and prevents, diagnoses, treats, or slows the progression of an illness and its symptoms.

But a strict definition for medical necessity “can ultimately undermine the ability for providers to make decisions about the health care for their own patients,” said Mary Ellen Grant, a spokeswoman for the California Association of Health Plans.

Because standards of care change over time, a specific definition could hamstring doctors and other mental care providers, she said.

Mary Watanabe, head of the state’s Department of Managed Health Care, urged Wiener in July to make changes to the medical necessity language.

The department also opposed language in the bill that would prohibit a plan from using discretionary authority to determine eligibility for benefits or coverage, and a provision that would require the plan to cover out-of-network services.

The latter provision, Watanabe said, would “create a disincentive for mental health and substance use disorder treatment providers to contract with health plans.”

Wiener didn’t make the requested amendments. The Department of Managed Health Care hasn’t taken a position on the final bill, spokeswoman Ashley Robinson said.

Difficult to Enforce

Mental health parity laws exist on the state and federal level, but they’ve been difficult to enforce, said Rebecca Haffajee, a policy researcher at the RAND Corp. and an adjunct assistant professor at the University of Michigan School of Public Health.

That’s because it’s hard to get information on how insurers determine whether to accept or deny a claim for mental health care, and to assess whether it was an equitable decision.

The California bill “is trying to essentially take that decision out of the insurance company’s hands,” and make the definition more objective, Haffajee said.

Insurers tend to cover treatment when a patient’s mental health becomes an emergency, according to Wiener. He likened it to treating a cancer patient only when the illness reaches its most advanced stage.

“We would never tolerate that with physical health but yet we tolerate that with mental health and addiction care,” Wiener said on a recent conference call.

Grant pointed to a California Health Benefits Review analysis of the bill that found just 0.2% of health plans don’t already cover all mental health and substance use disorders.

Wiener’s office said that while nearly all plans require that coverage under the Affordable Care Act, in practice companies can deny it by relying on their own criteria for what is medically necessary.

California Insurance Commissioner Ricardo Lara, whose department regulates preferred provider organizations, supports the measure, saying it would strengthen the existing mental health parity law.

California’s 1999 mental health parity law only covers nine diagnoses, including schizophrenia, major depressive disorders, obsessive-compulsive disorder, and anorexia nervosa and bulimia nervosa.

Class Actions

Nationwide, tens of thousands of people are involved in litigation against insurance companies that denied claims based on internal criteria of what constitutes a covered mental health condition.

A federal judge ruled last year in Wit v. United Behavioral Health, a class action with at least 50,000 members, that United Behavioral Health used guidelines that were too narrow and violated federal law.

In that case, plaintiffs David and Natasha Wit challenged the company for denying coverage of Natasha’s residential treatment at Monte Nido Vista, a California facility that treats eating disorders.

There are at least five national class actions challenging health insurers for systematically denying claims, said Meiram Bendat, an attorney and founder of Psych Appeal, a law firm that represents patients who have been denied mental health insurance coverage.

If Wiener’s bill is signed, it would address many of the concerns that arose from those lawsuits.

“You’re talking about a good number of people who stand to be positively impacted by this,” Bendat said.