Working a denied insurance claim:

You finish a full clinical day, open your billing dashboard, and there it is: a denial. The reason is vague, the language is dense, and the timing is bad (it always is). Do you spend the next hour writing an appeal, or move on and absorb the loss?

The math is sobering. A KFF analysis of CMS transparency data found that ACA Marketplace insurers denied about 1 in 5 in-network claims in 2024, and consumers appealed fewer than 1% of those denials. Of the appeals that were filed, insurers upheld about two-thirds. The system relies on you giving up before you appeal.

Most denials are workable if you know the order of operations. This guide walks the escalation ladder from the smallest fix (re-reading the EOB) to the most formal (a regulatory complaint), with the timelines and rights that apply at each step. The focus is on decisions: which step to take next, when to escalate, and when to stop.

A note before you read further: this post is general information, not legal advice. State law, plan type, and your specific payer contracts can shift the details, so always read your payer agreements and your client’s Summary Plan Description (SPD) when stakes are high.

Read the EOB before anything else

Every denial starts with the explanation of benefits (EOB) or electronic remittance advice (ERA). Two pieces of information matter most:

• The Claim Adjustment Reason Code (CARC) tells you the broad reason: contractual obligation, patient responsibility, “other adjustment,” or payer-initiated.

• The Remittance Advice Remark Code (RARC) tells you the specific detail: missing modifier, invalid procedure code, lacks medical necessity, and so on.

X12 maintains the official CARC list. A few patterns come up constantly in behavioral health:

• CO-16 (claim/service lacks information), usually paired with a remark code pointing to a missing modifier, NPI, or place-of-service code

• CO-50 (non-covered services because not deemed medically necessary)

• CO-45 (charge exceeds fee schedule), usually a contracted-rate write-off rather than a denial to appeal

• CO-97 (service included in another procedure already paid)

• CO-197 (prior authorization not obtained)

• PR- codes (patient responsibility: deductible, copay, coinsurance)

Reading the code first prevents you from investing appeal time in a claim that just needed a corrected submission. For a deeper walkthrough of remits and how to read them, see how to make sense of EOBs and ERAs.

Distinguishing a rejection from a denial

These are not the same thing. A rejection happens before a claim is adjudicated: something in the claim failed a format or data check, so the payer never processed it. A rejection can usually be fixed and resubmitted without triggering appeal procedures.

A denial means the payer received and processed the claim, then refused payment. If you have a denial letter or an EOB with a denial reason code, appeal timelines have started.

If a claim arrives even a day past the timely filing window, it’s typically denied as “untimely” with no appeal rights. Time is not on your side once that clock starts.

Verify the basics before you appeal anything

A large share of denials have nothing to do with the clinical content of the visit. Before spending energy on a formal appeal, run the boring checks:

• Eligibility on the date of service. Did the plan terminate, change, or carve out behavioral health to a separate vendor.

• Prior authorization. Was one required, was it on file, did it cover the date range.

• CPT and modifier accuracy. 90791 vs. 90834 vs. 90837. Telehealth modifiers (95, GT). POS 02 vs. 10.

• Diagnosis-to-service alignment. Is the F-code on the claim consistent with the service billed.

• Timely filing. Most commercial payers require submission within 90 to 180 days; verify through your payer portal or provider manual.

• Coordination of benefits. If the client has a secondary plan, the primary plan must be billed first.

Most payers allow a corrected claim or reconsideration as a faster, lighter-weight path than a formal appeal. Check the provider manual: the form, the timeline (often 30 to 90 days from the original remit), and the submission method are payer-specific.

Document the trail before you make a single call

Before you escalate, set up the paper trail. The APA Services guidance on handling claim denials recommends keeping, for every disputed claim:

• The date and time of every call, the representative’s name and title, and a one-line summary

• Reference numbers for every call, fax, and submission

• Copies of every EOB, denial letter, appeal submission, supporting document, and response

• A signed authorized representative form if your client has designated you to act on their behalf

This file is what carries the argument if a case ever moves to external review, a regulatory complaint, or further escalation. Strong documentation also protects you from a separate risk: payer audits and clawbacks.

Request a peer-to-peer review

If the denial is for medical necessity, your first escalation step should be a peer-to-peer review request, not a written appeal. A peer-to-peer is a clinician-to-clinician phone conversation with the payer’s reviewer about a denied or pending authorization. It’s faster than a written appeal, sometimes scheduled within days, and it can resolve a medical-necessity denial without paperwork.

Most commercial payers offer it as a standard process. Aetna’s clinical policy guidance, for example, treats peer-to-peer review as a step that happens before a formal appeal and is required by state, federal, CMS, and NCQA standards. You’re not asking for a favor.

A few things worth knowing:

• The “peer” you talk to may not actually share your specialty. An AMA survey of physicians found that only 15% said the payer’s reviewer often or always had the appropriate qualifications. You can request that the reviewer be a clinician who treats the condition under review.

• The P2P is generally a chance to clarify clinical reasoning, not the formal decision point. Some payers will reverse a denial on the call; others will require a written appeal afterward.

• Payer rules vary on whether you can request a P2P after submitting a written appeal. Schedule the P2P first if you can.

Come prepared. Bring your treatment plan, recent progress notes, the payer’s published medical necessity criteria, and clinical guidance from groups like the American Psychiatric Association’s Practice Guidelines, which the APA notes many payers cite in their own utilization standards. Fifteen minutes of clear clinical explanation often beats weeks of paper processing.

If peer-to-peer doesn’t resolve it, you’ve still gathered useful information about the reviewer’s objections, which makes your written appeal sharper.

File the internal appeal

If peer-to-peer doesn’t overturn the denial, you have the right to a formal internal appeal. The HealthCare.gov internal appeals guidance sets the federal floor for non-grandfathered plans:

• Members generally have 180 days from the denial to file

• The plan must decide a pre-service claim within 30 days, a post-service claim within 60 days, and an urgent claim within 72 hours

• An authorized representative (often the treating therapist, with written authorization) can file on the client’s behalf

A strong appeal letter does more than repeat the original submission. It quotes the denial reason directly, responds to that specific reason (not a general statement of need), and ties clinical documentation back to the payer’s published medical necessity criteria.

One right worth knowing: under the Department of Labor’s ERISA claims procedure regulation (29 CFR 2560.503-1), plans must provide, on request and free of charge, the specific rules, guidelines, and clinical criteria used to deny a claim, along with any scientific or clinical judgment that supported the denial. Ask for it. You can’t argue against criteria you haven’t seen.

Be aware of HIPAA’s minimum-necessary standard when releasing client records for an appeal. Send what’s needed to make the case, not the entire chart, and especially not psychotherapy notes if they’re not directly relevant.

Know whether ERISA applies

This is where many therapists waste appeal time. A self-funded employer plan where the employer, not an insurance company, bears the financial risk, operates under federal ERISA law, not state insurance regulations. As the Department of Labor explains, ERISA preempts most state insurance law for these plans.

Why does this matter? State external review processes, state-level parity mandates, and state insurance commissioner complaints may not apply to self-funded plans the way they apply to fully insured plans.

To find out:

• Look at the client’s insurance card for “ASO” (administrative services only) or “self-funded”

• Ask the client to check the Summary Plan Description (SPD) or with their HR department

• A quick rule of thumb: if the card says “administered by [insurer]” but the plan name references the employer, it’s probably self-funded

For ERISA plans, the federal claims procedure regulation governs, the federal external review process applies, and complaints go to the Department of Labor’s Employee Benefits Security Administration (EBSA), not your state insurance commissioner.

Invoke mental health parity when applicable 

If the denial appears to apply a stricter standard to your client’s mental health care than the plan would apply to a comparable medical or surgical service, that may be a parity violation.

The Mental Health Parity and Addiction Equity Act (MHPAEA) generally prevents group health plans and issuers that cover mental health or substance use disorder benefits from imposing less favorable benefit limitations on those benefits than on medical or surgical benefits. Restricted non-quantitative treatment limitations (NQTLs) include things like prior authorization requirements, medical management techniques, network composition standards, and out-of-network reimbursement methodologies.

The regulatory picture is in flux. On May 15, 2025, the Departments of Labor, HHS, and Treasury issued a joint statement declaring they will not enforce the 2024 MHPAEA final rule pending the outcome of litigation plus an additional 18 months. The Departments emphasized in that same statement that MHPAEA’s statutory obligations, as amended by the Consolidated Appropriations Act of 2021, continue to have effect. The core principle that mental health benefits must be no more restrictive than medical and surgical benefits is still the law, and state parity statutes continue to apply.

Where parity helps an appeal:

• A plan limits outpatient therapy to fewer sessions than it allows for comparable outpatient medical services like physical therapy

• A plan requires prior authorization for routine outpatient psychotherapy but not for comparable medical office visits

• A plan applies stricter medical necessity criteria, more frequent concurrent review, or shorter authorization durations to mental health than to medical care

• A plan’s behavioral health network is materially harder to access than its medical/surgical network

If any of those patterns show up, name MHPAEA explicitly in the appeal and request the plan’s NQTL comparative analysis. Section 203 of the Consolidated Appropriations Act of 2021 requires plans to produce it on request.

Request an external review

If the internal appeal is denied, you have one more right before considering litigation: external review by an independent reviewer who doesn’t work for the insurer. This is where many denials finally get overturned. According to HealthCare.gov’s external review guidance:

• Members have four months from the final internal denial to request external review

• Standard external reviews must be decided within 45 days; expedited reviews within 72 hours

• The insurer is required by law to accept the external reviewer’s decision

External review is generally available for denials involving medical judgment (medical necessity, level of care, experimental treatment, network adequacy) and for rescission of coverage. It is generally not available for denials based on a clear plan exclusion or strict eligibility cutoff.

Which entity runs the review depends on the plan:

• Fully insured plans typically use the state’s external review process. The NAIC directory of state insurance departments is the starting point.

• Self-funded ERISA plans and plans in states without a qualifying process use the HHS-administered federal external review process run by MAXIMUS Federal Services.

The insurer pays the cost of the independent review organization. Any consumer filing fee is capped at $25 per external appeal.

This step is underused. A KFF survey found that just 40% of insured adults knew they had external appeal rights. Knowing about it, and helping clients access it, is one of the highest-leverage things you can do.

File a regulatory complaint

A regulatory complaint is not a last resort; it’s a parallel tool you can use at any point in the escalation. The regulator can’t directly overturn the denial, but it can investigate patterns, apply regulatory pressure, and build a record. Filing usually takes 15 minutes online. 

Two agencies matter, and which one depends on the plan: 

• State Department of Insurance for fully insured plans, individual market plans, and ACA Marketplace plans. Use the NAIC directory to find yours. 

• U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) for self-funded ERISA plans. EBSA’s askebsa.dol.gov intake or 1-866-444-3272 is the channel. 

You can file a complaint while an appeal or external review is pending. Regulators sometimes resolve issues through informal contact with the insurer before any formal investigation begins. 

Know when to write off

Not every denial is worth fighting to the end. At some point, the administrative time invested in escalation exceeds the dollar value of the claim, particularly for single-session, low-dollar denials where the underlying issue is ambiguous. 

A reasonable write-off threshold for solo practice: if the claim is under $100, the denial reason suggests a plan exclusion rather than a fixable error, and the plan is not subject to parity protections in any meaningful way, the write-off is probably the right call. Reserve escalation energy for medical necessity denials, higher-dollar claims, and situations where a pattern of denials from the same payer is emerging. 

Tracking denial patterns by payer is how individual write-off decisions become practice management intelligence over time. 

Building habits that mean fewer denials 

The most efficient appeal is the one you never have to file. Practices that handle denials well tend to share a few habits:

• Verifying eligibility and benefits at intake and before each session block. Document the rep’s name, the date, the reference number, and the specifics quoted.

• Confirming prior authorization requirements upfront, including any concurrent review schedule.

• Coding accurately and consistently. CPT to ICD-10 alignment that’s clinically defensible, with the modifiers your payer mix requires.

• Documenting medical necessity in the chart, not as a retrofit. Severity, functional impact, treatment plan goals, and response to treatment belong in your standard note structure, not added after a denial. Our post on writing clinical notes that hold up to payer review walks through what that looks like in practice.

• Tracking denials by payer, by reason code, and by outcome. Patterns are leverage in payer negotiations and parity complaints.

• Scrubbing claims before submission, so that the denials that do come through are substantive and worth contesting.

For mental health practices working through these workflows, TheraNest by Ensora Health can flag eligibility issues, scrub claims before submission, and surface denial patterns over time. Cleaner front-end processes typically translate to fewer downstream appeals and a faster path through the ones that remain.

Escalation sequence at a glance

1. Read the denial code (CARC + RARC) and identify the denial type
2. Distinguish rejection from denial; fix administrative errors immediately 
3. Set up the documentation trail
4. Request peer-to-peer review for medical necessity denials
5. Identify whether ERISA applies; adjust your escalation path accordingly
6. File the internal appeal (federal floor: 180 days to file, 30-day decision for standard pre-service)
7. Invoke MHPAEA in the appeal if mental health is held to a stricter standard
8. Request external review if internal appeal is denied (insurer pays; binding on the plan)
9. File a state insurance commissioner or DOL EBSA complaint in parallel
10. Make the write-off decision deliberately, not by default

When a denial lands on your desk

A denial is the start of a process, not the end of one. Members appeal fewer than 1% of denied claims, and many of those are upheld simply because the appeal didn’t engage the specific reason for the denial. The therapists who recover the most revenue from denied claims aren’t the ones with the fewest denials: they’re the ones who slow down, read the codes, name the rule, cite the source, and follow the ladder.