Colorado will reinstate a prior authorization requirement for Medicaid patients seeking more than 24 outpatient mental health therapy sessions per year, a move officials say is necessary to address a significant state budget deficit. The policy change, set to begin in January, is part of a broader series of cuts ordered by Governor Jared Polis to close a financial gap created by recent federal tax legislation.
The Colorado Department of Health Care Policy and Financing, which manages the state's Medicaid program, estimates the measure will save approximately $6.1 million by the end of the fiscal year in July. This decision reverses a 2022 law that had eliminated the pre-approval process for psychotherapy sessions.
Key Takeaways
- Starting in January, Colorado will require prior authorization for Medicaid patients receiving more than 24 therapy sessions in a year.
- The change is part of Governor Jared Polis's plan to close a $783 million state budget shortfall.
- Officials project the measure will save the state an estimated $6.1 million in the current fiscal year.
- The decision reverses a 2022 law that removed the requirement, which was followed by a significant increase in high-frequency therapy use.
Budget Deficit Drives Healthcare Cuts
The decision to reintroduce limits on therapy sessions stems from severe budgetary pressures facing Colorado. Recent federal tax changes, specifically from H.R. 1, known as the “Big Beautiful Bill,” resulted in a $783 million shortfall for the state's current fiscal year.
In response, Governor Polis has directed state agencies to implement $252 million in cuts and fund sweeps. The Department of Health Care Policy and Financing, which oversees Medicaid, is bearing a substantial portion of these reductions, accounting for approximately one-third of the total cuts.
Background on the Cuts
The governor's authority to make these adjustments comes from a bill passed during a special legislative session. The law permits the governor to suspend or discontinue state agency services for up to three months, with an option to renew the order for an additional three months. Reinstating therapy authorization is the third-largest cut within the health department's budget.
Cristen Bates, the deputy Medicaid director, explained that the department must find ways to control costs to avoid more drastic measures. She stated that the alternative would be widespread cuts to services or a reduction in the number of people covered by Medicaid.
“We’re reviewing every single program,” Bates said, emphasizing the state's responsibility to cover only medically necessary care, particularly under the current financial constraints.
A Sharp Rise in Intensive Therapy Use
State officials pointed to a rapid increase in the number of patients receiving a high volume of therapy sessions since the prior authorization rule was lifted in 2022. According to the health department, this trend suggests the previous requirement was influencing provider behavior more than anticipated.
The original 2022 bill was intended to reduce administrative burdens for therapists, as the state had historically approved the vast majority of requests. Before the law changed, the department rejected only 2% to 3% of prior authorization requests.
Data on Therapy Utilization
- In the fiscal year ending June 2024, approximately 10% of Medicaid members who used therapy services had at least 26 sessions.
- The number of patients receiving more than 56 sessions in a single year roughly doubled after the prior authorization requirement was removed.
Bates acknowledged that intensive therapy is medically necessary for patients with conditions like complex post-traumatic stress disorder. However, she suggested that such high frequency is likely not required for individuals with more common mental health needs.
"It seems like the rule was actually governing people's behavior," Bates commented on the effect of removing the pre-approval process.
Concerns from Lawmakers and Providers
The policy reversal has drawn criticism from mental health professionals and some lawmakers who championed the 2022 change. They argue that limiting access could have negative consequences for patients and potentially increase long-term costs.
State Senator Judy Amabile, a Boulder Democrat who co-sponsored the 2022 bill, expressed her disappointment with the decision. She noted that while the state is in a difficult budget situation, mental health services are often disproportionately affected.
"I feel like behavioral health is always the first thing to get cut or the last thing to be funded, and that is really shortsighted," Amabile said.
She added that the legislature's Joint Budget Committee will have an opportunity to review the governor's cuts and could potentially reverse some of them. However, finding the funds will be challenging, as the state faces another projected budget gap of $840 million in the upcoming fiscal year.
Providers Warn of Potential Consequences
Mental health providers are concerned that the new rule will create barriers to care. Dr. Lisa Griffiths, a psychologist and owner of the Center for Valued Living in Denver, warned that if patients cannot access regular therapy, their symptoms could worsen, leading them to seek treatment in more expensive settings like hospitals.
"Our work is sort of preventive," Griffiths explained. "We're the primary line of defense here, and we're the least expensive" method for treating mental health conditions.
Blair Skinner, clinical director of the Early Childhood Wellness Place in Broomfield, argued that the increased demand for mental health services is a positive sign that more people are seeking help. "That's really a win," she said. "Of course there's increased mental health need right now."
Skinner also highlighted the administrative burden that prior authorization paperwork places on small practices, which may need to hire additional staff to manage the process, diverting resources away from clinical care. "It's just more work for us," she concluded.
