Last Updated on February 17, 2025

When using health insurance for therapy or mental health services, it’s important to understand key terms that affect your costs and coverage. Below is a breakdown of essential insurance concepts, including medical necessity, which determines whether your treatment is covered.

🔹 Premium – Your Monthly Insurance Cost

A premium is the amount you pay every month to keep your insurance active, regardless of whether you use it or not.

✅ Even if you don’t visit a doctor, you must continue paying your premium to maintain coverage.
✅ If you have employer-sponsored insurance, your employer may cover part of the premium, reducing your cost.

🔹 Deductible – The Amount You Pay Before Insurance Kicks In

Your deductible is the amount you must pay out-of-pocket for medical expenses before your insurance starts covering services.

✅ Example: If your plan has a $1,500 deductible, you must pay $1,500 on your own before insurance begins covering costs.
✅ Some plans waive the deductible for mental health visits, meaning insurance starts covering therapy right away.

🔹 Copay – Fixed Cost Per Visit

A copay is a fixed amount you pay each time you see a doctor, therapist, or psychiatrist.

✅ Example: If your therapy copay is $25, you pay $25 per session, and insurance covers the rest.
✅ Copays vary depending on the type of visit (e.g., primary care, specialist, emergency room).

🔹 Coinsurance – Your Share of the Costs After Deductible

Once you meet your deductible, instead of paying full price, you split the cost with your insurance. This split is called coinsurance.

✅ Example: If your coinsurance is 20%, and a therapy session costs $150, you pay $30 (20%), while your insurance pays $120 (80%).
✅ The lower your coinsurance percentage, the less you pay per visit.

🔹 Out-of-Pocket Maximum – Your Yearly Spending Limit

The out-of-pocket maximum is the highest amount you will pay in a year for covered medical expenses. Once you reach this limit, insurance covers 100% of your costs.

✅ Example: If your out-of-pocket max is $5,000, once you pay $5,000 in medical bills (including deductibles, copays, and coinsurance), insurance pays everything else for the rest of the year.

🔹 Medical Necessity – What Insurance Will & Won’t Cover

Just like health insurance won’t cover a non-essential cosmetic procedure, it will only cover mental health treatments it deems medically necessary.

What Does “Medically Necessary” Mean? 🤔

For a service to be covered by insurance, it must:
✔ Be necessary for treating a diagnosed mental health disorder 🏥
✔ Be clinically appropriate based on established medical guidelines
✔ Not be considered experimental, elective, or unnecessary

What Insurance Usually Covers:

✅ Talk therapy for mental health conditions (e.g., depression, anxiety, PTSD)
✅ Psychiatric medication management (if prescribed by a doctor)
✅ Some psychological assessments (only when required for a diagnosis or treatment)

What Insurance May NOT Cover:

❌ Personal growth or self-improvement therapy (e.g., therapy for general stress without a mental health diagnosis)
❌ Certain psychological assessments (e.g., ADHD testing for school accommodations, autism evaluations for personal knowledge)
❌ Couples therapy or career counseling (unless linked to a medical diagnosis)

📌 Example: If you want a psychological evaluation for ADHD but do not need medication or treatment, insurance may deny coverage, considering it not medically necessary.

🏷️ Why Insurance Requires a Diagnosis Code for Therapy

To use insurance for therapy, a therapist must submit a diagnosis code to the insurance company. This means:

📌 You must be diagnosed with a mental health disorder 📋 (e.g., Generalized Anxiety Disorder, Major Depressive Disorder).
📌 The severity of the disorder must justify treatment (e.g., moderate to severe symptoms).
📌 Without a diagnosis, insurance will not pay for therapy.

💡 This requirement can have implications on:
🔹 Employment – Some high-security jobs (e.g., government, law enforcement) review medical records.
🔹 Life & Disability Insurance – A mental health diagnosis may increase premiums or lead to denial of coverage.
🔹 Immigration & Legal Matters – Certain mental health diagnoses may affect visa applications, disability claims, or custody cases.

📌 For a detailed discussion on how using insurance for therapy can impact employment, life insurance, and more, check out:
👉 Should You Use Insurance for Therapy? How It Affects You and How to Navigate It

Understanding these basic insurance terms and medical necessity rules helps you budget for mental health care and choose the best plan for your needs. 💙