California’s Medicaid Family Therapy Benefit Reimagines Medical Necessity
Innovations in Youth Mental Health
By Nia West-Bey
In 2022, we have seen growing attention on the youth mental health crisis in this country. The U.S. Surgeon General’s office issued an unprecedented advisory about the critical state of youth mental health. In response, the Biden Administration released a comprehensive plan and budget proposal. Young people—particularly young people of color and those living in poverty—were facing growing mental health need well before the COVID-19 pandemic. The pandemic has exacerbated and amplified these existing inequities. Although the scope of the challenge is great, communities have launched innovative approaches in youth mental health that meet the moment and have the potential to transform access to care.
In our mental health policy work, we have consistently heard that definitions of “medical necessity” create challenges around access to mental health services and to reimbursement for providers offering those services. In our Policy Advancing Transformation and Healing (PATH) technical assistance work, we learned that young people prefer to access mental health care without a diagnosis, both because diagnoses carry stigma and can create barriers rather than facilitate access to care.
In 2021, California updated its Medicaid (called Medi-Cal in California) non-specialty mental health services provider manual to clarify eligibility for family therapy. Young people under the age of 21 are eligible for this benefit based on a mental health diagnosis or any of the following life experiences:
- Separation from a parent/guardian due to incarceration or immigration
- Death of a parent/guardian
- Foster home placement
- Food insecurity, housing instability
- Exposure to domestic violence or other traumatic events
- Severe and persistent bullying
- Experience of discrimination based on race, ethnicity, gender identity, sexual orientation, religion, learning differences, or disability
California is the only state in the country to formally name racism and other forms of discrimination as qualifying criteria for mental health services. The state also includes financial strain, exposure to violence, and unresolved trauma—all leading mental health challenges identified by young people from communities that have been marginalized. This approach also centers life experiences in determining access to care, rather than a mental health diagnosis.
California’s non-specialty mental health services provider manual was updated again in December 2021 to address reimbursement for psychotherapy, including individual, family, or group therapy services to children without a mental health disorder. Instead of requiring a diagnosis, providers can use a few billing codes to indicate that they are providing preventative counseling or services for children who, based on the list of life experiences described above, are at risk for future mental health concerns.
The definition of medical necessity in California for non-specialty mental health services for those under 21 aligns closely with the types of life events and systemic challenges that have the most significant impact on young people’s mental health. Several policy decisions made this definition possible:
1. California Advancing and Innovating Medi-Cal (CalAIM): CalAIM is a long-term commitment to transform and strengthen Medi-Cal, offering Californians a more equitable, coordinated, and person-centered approach to maximizing their health and life trajectory. As part of this initiative, California—which operates the largest Medicaid program and was one of the nation’s lowest performers when it comes to services for children—decided to renegotiate its 1115 and 1915b waivers through the Centers for Medicare and Medicaid Services as part of broad reforms. California’s 1915(b) waiver provides for non-specialty mental health services as part of its Medicaid managed care plans, while specialty mental health services are provided through a separate county mental health delivery system. The waiver requires managed care providers to reimburse outpatient mental health services for beneficiaries under age 21 regardless of level of distress or impairment or the presence of a diagnosis.
2. Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) benefit: EPSDT is a Medicaid benefit that provides comprehensive prevention and treatment services to people under the age of 21. The EPSDT mandate requires a focus on prevention and early intervention, including treatment. California leverages its benefit to fund family therapy services for youth who do not yet have a mental health diagnosis.
3. Diagnosis and Service Codes: To bill for services, providers are required to provide a diagnosis code. For young people receiving services because of the life experiences identified in the new medical necessity definition, providers can use International Classification of Diseases (ICD) code Z65.9: problems related to unspecified psychosocial circumstances. Providers can also use code 89 for other specified counseling, which includes preventive counseling.
This Mental Health Awareness Month, we are highlighting transformative solutions aligned with our mental health policy framework. California’s therapy benefits demonstrate what’s possible when we center young people’s most pressing needs in how we define medical necessity.