The Definition of Medical Necessity in Health Insurance

Health insurance plans provide coverage only for health-related serves that they define or determine to be medically necessary.

Medicare, for example, defines medically necessary as: “Services or supplies that are needed to diagnose or treat your medical condition and that meet accepted standards of medical practice.” Medical necessity refers to a decision by your health plan that your treatment, test, or procedure is necessary for your health or to treat a diagnosed medical problem.

Most health plans will not pay for healthcare services that they deem to be not medically necessary. The most common example is a cosmetic procedure, such as the injection of medications (such as Botox) to decrease facial wrinkles or tummy-tuck surgery. Many health insurance companies also will not cover procedures that they determine to be experimental or not proven to work.

But "cosmetic" procedures done for restorative purposes are generally covered by health insurance, such as breast reconstruction after a mastectomy, plastic surgery after an injury, or repair of congenital defects such as cleft palate.

Patient handing over insurance card
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Criteria to Determine Medical Necessity

Medicare and private insurers have varying criteria for determining whether a given procedure is medically necessary based on the patient's circumstances. Medicare uses National Coverage Determinations and private Medicare plans (i.e., Medicare Advantage) use Local Coverage Determinations in order to ensure that the criteria for medical necessity are met.

Private insurers that offer non-Medicare plans can set their own criteria (which may or may not mirror Medicare's criteria), although they're required to provide coverage that's in compliance with state and federal benefit mandates.

For individual and small group health plans with effective dates of January 2014 or later, this includes coverage for the essential health benefits defined by the Affordable Care Act. But states determine the exact standards plans have to meet in order to be in compliance with the essential health benefits requirements.

Medical Uses of Marijuana

The use of marijuana for medical reasons is a prominent 'medical necessity' case. Cannabis is a plant with active ingredients that are widely reported by sufferers to be effective in pain control for various conditions, usually neuropathic in nature, where common pharmaceutical painkillers have not worked well.

Medical marijuana first became legal under state statute with the passage of California's Proposition 215 in 1996. As of mid-2021, the medical use of cannabis is legal in 36 states and the District of Columbia, as well as four of the five U.S. territories.

However, as a Schedule I drug under the Controlled Substance Act, marijuana is illegal under federal law. Schedule I drugs are defined by the Drug Enforcement Administration as having "no currently accepted medical use and a high potential for abuse." Interestingly, cocaine and methamphetamine are both classified as Schedule II drugs, putting them one rung lower on the DEA's system for classifying "acceptable medical use and the drug’s abuse or dependency potential."

Marijuana has also not been approved by the FDA, in part because its Schedule 1 classification has made it difficult for the FDA to conduct adequate trials to determine safety and efficacy. Over the last four decades, there have been repeated proposals to change the Schedule 1 classification for marijuana. And although the DEA has thus far refused to change the classification of marijuana, the agency did downgrade certain FDA-approved CBD products (with THC content below 0.1%) from Schedule 1 to Schedule 5 in 2018.

The DEA also agreed in 2016 to increase the number of DEA-approved facilities growing marijuana for research purposes. As of 2021, there is still just one such facility (at the University of Mississippi), but the DEA noted in 2019 that they are "making progress in the program to register additional marijuana growers for federally authorized research, and will work with other relevant federal agencies to expedite the necessary next steps."

For the time being, however, due to marijuana's classification as a Schedule I drug (with "no currently accepted medical use"), its illegality under federal laws, and the lack of any FDA approval, health insurance plans do not cover medical marijuana, regardless of whether state law deems it legal, and regardless of whether a healthcare provider deems it medically necessary. But certain FDA-approved synthetic THC can be included in a health insurance plan's covered drug list.

Prior Authorization, Referrals, and Network Rules: Check With Your Health Plan

It’s important to remember that what you or your healthcare provider defines as medically necessary may not be consistent with your health plan’s coverage rules. Before you have any procedure, especially one that is potentially expensive, review your benefits handbook to make sure it is covered. If you are not sure, call your health plan’s customer service representative.

It's also important to understand any rules your health plan may have regarding pre-authorization. Your plan might require you and your healthcare provider to get approval from the health plan before a non-emergency procedure is performed—even if it's considered medically necessary and is covered by the plan—or else the plan can deny the claim.

And depending on your health plan's rules, you may have to obtain a referral from your primary care healthcare provider and/or receive your treatment from a medical provider within the health plan's network. If you don't follow the rules your plan has in place, they can deny the claim even if the treatment is medically necessary.

For certain expensive prescriptions, your health plan might have a step therapy protocol in place. This would mean that you have to try lower-cost medications first, and the health plan would only pay for the more expensive drug if and when the other options don't work.

Understand Your Right to Appeal

Health plans have appeals processes (made more robust under the Affordable Care Act) that allow patients and their healthcare providers to appeal when a pre-authorization request is rejected or a claim is denied.

While there's no guarantee that the appeal will be successful, the ACA guarantees your right to an external review if your appeal isn't successful via your health insurer's internal review process, assuming you don't have a grandfathered health plan.

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