Insurance or private pay? Welcome to the conundrum.

At the heart of the conundrum is the idea of accepting insurance to help people who otherwise could not afford it, versus a potentially better-paying private-pay model that’s especially attractive to new therapists who might be saddled with student debt.

Let’s take a closer look at the pros and cons of each direction. 

Insurance: The pros

Larger client pool

There’s no question that accepting insurance payments for patients who have coverage exposes practices to a broader client population. It also serves a need in the community, opening access to affordable care for more people.  

Steady revenue

With a stable and steady client base fueled by insurance acceptance and the referrals, practice revenue and therapist income might be more consistent, reliable, and predictable. 

Practice credibility

For many patients, being part of a larger, vetted network of care is viewed as a stamp of approval. It speeds research, access, and onboarding, facilitates therapeutic alliances, and, in theory, results in a positive overall care experience. Additionally, in-network practices can offer connections—referrals—to other in-network providers, streamlining specialized care for patients. All of which could prompt good reviews for in network practices. 

Insurance: The cons

Lower rates of reimbursement

Insurance companies’ reimbursement rates are often lower than rates for sessions with private pay clients. Practice profitability could take a hit. It could be harder to make a living by accepting only insurance-pay clients.  

Administrative Burden

This is the bane of insurance acceptance, especially for small practices in which therapists may also wear admin hats. Therapists can be consumed with pre-authorization, paperwork, and chasing third-party resources which sucks time away from care.  Practices can spend 20 to 30 percent of their revenue on managing insurance claims. 

Slow payments

Claims journeys can be long and windy with hurdles and tasks along the way. It’s no accident. Insurers are financially incentivized to delay payments. The slower the pay the greater the returns and interest earned from investments from premium money. The risk for the practice is financial instability.

Treatment restrictions

Therapeutic autonomy can be compromised when insurance companies impose restrictions on treatment or require a formal diagnosis of patients. 

Confidentiality threats

Some patients are not comfortable with practices sharing their treatment or diagnosis information with insurance companies or anybody else. 

Bureaucratic Complexity

It’s not like you’d just have one insurance company to deal with. More likely, it’s several. Processes and policies vary between insurance companies, adding another layer of administrative complexity to practices who accept insurance.   

Shrinking pool

That broader client pool I wrote about earlier? It’s likely shrinking with diminished Medicare coverage coming out of the new federal spending bill. Fewer people will have insurance coverage for mental health care. 

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More than one-third

of practicing psychologists in the U.S. do not take insurance.
– 2024 APA Practitioner Pulse Survey

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Private pay: The pros 

True confidentiality 

With no entity to share diagnosis or treatment plans, patient confidence and peace of mind could make for a stronger therapeutic alliance.   

More flexibility 

Without restrictions and guidelines from insurance companies to adhere to, therapists have more flexibility to create personalized treatment plans or try new approaches that might yield better outcomes. 

Patient freedom

Many clients like choices too. Without the restrictions of a network, clients can shop around for a therapist that’s more conveniently located, offers a specialization, or is simply a better personal fit.   

Faster access

Some insurance carriers require approvals before care can begin. Remove that restriction and clients can start care faster.  

No diagnosis required

Sometimes an official diagnosis is a challenge to get to, especially for clients with wide-ranging mental health issues and needs. With a private-pay model, you can move forward with care without the official diagnosis that insurance carriers require. 

Private pay: The cons 

Higher out-of-pocket costs for patients 

To be sure, private-pay therapy is a major drawback for some potential clients. The out-of-pocket costs may not be affordable. Some private-pay clients who begin therapy with the best of intentions may struggle to keep up with larger bills. 

Potential shrinking client base

For some private-pay therapists, there’s a potential competitive or financial disadvantage in losing prospective clients to in-network practices, also reducing or limiting client diversity.  

The superbill alternative

This is less a con (or a pro, for that matter) as it is a solution for the private-pay client who has insurance coverage which the therapist can’t accept. A superbill, generated by the therapists and provided to the client, offers a method of reimbursement to the client for out of network care. A superbill does require a diagnosis. A small concession for keeping the business. 

Considerations that may help decision making

Ultimately, a decision to accept insurance or take the private-pay route may come down to a few additional considerations or high-level questions. 

• How does either option serve the mission and goals you set for your practice? 
• What kind of demographic or community do you want to serve? 
• What are the financial requirements for business sustainability and growth? 
• What is your tolerance for administrative tasks?  

Mutually exclusive choices? 

No. You could do both—as a hybrid practice. But there are two problems with that model. 1) You’d have to be sure that you are not credentialed within an insurer’s network to which your client belongs.  2) Most practice management systems today are designed for insurance models and are not flexible enough to easily manage insurance and private-pay clients.

Which is a shame. The conundrum is wearing thin among therapists and it’s something we’re set on fixing at MediSprout. (Automated superbill generation is already a feature.) 

There is no reason why practice management and EHR technology can’t be more flexible. It’s all about smart design that positions the needs of the therapist as a north star. Whether it’s insurance acceptance, private pay, or both, what therapists need and want is to be able to run practices their way.  

Sam Virk, MD is the CEO and founder of MediSprout.