Should I (Continue to) Take Insurance?

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To Take Insurance or Not?

One of the most common (and vexing) questions private practitioners ask is whether to take (or continue to take) insurance.

Personally, I fall firmly in the “no” side of that, for reasons you can read in this piece – Are You a Walmart Therapist?

Here’s a quick summary of 5 of the reasons I list there:

  1. Your therapy services may not be covered – for example couples therapy is not covered by most plans.
  2. Insurance requires “medical necessity” so you’re forced to diagnose the client as having a mental disorder out of the DSM V; which may be inappropriate, or even forcing you to commit de-facto fraud (e.g., if the clients are simply dealing with relationship challenges rather than any diagnosable issue).
  3. Insurer employees who never met your client can (and often do) interfere in your treatment plan.
  4. Reimbursement rates are much lower than what most private-pay clients would pay.
  5. You have to jump through hoops (and likely pay a billing specialist or service) to file claims, follow up on unpaid ones, refile when they’re declined, and usually wait weeks or months to get paid.

However, there are some reasons why taking insurance may make sense to you.

For example:

  • Most clients expect to be able to use their insurance, so building up your caseload with just private-pay clients requires a lot more marketing; insurance panels give you access to as many clients as you’re willing to serve.
  • Insurance gives affordable access to mental health care to many people who might otherwise be unable to afford it.

Thus, if you see it as a life goal to provide therapy to everyone who needs it, overriding your own wellbeing and prosperity; and/or if you’re completely unwilling to do the (ethical) marketing needed to make sure your ideal clients know about your services so they can choose to call you, taking insurance may be the right choice for you.

How to Build a Sustainable Practice that Takes Insurance

If you feel strongly that you need to accept insurance, I’d like to share with you this little snippet of a video out of the original Karate Kid:

In it, Mr. Miyagi asks Daniel if he’s ready to learn karate, and guides him through making that decision. He says:

Daniel-san, must talk.

Walk on road, hmmm, walk right side, safe. Walk left side, safe. Walk middle, sooner or later, [makes squish gesture] get squish, just like grape.

Here karate, same thing. Either you karate do, yes, or karate do, no. You karate do, guess so, [makes squish gesture again] just like grape...

(And now you know why I chose the image above :)).

In the context of a private practice, deciding on taking (or continuing to take) insurance, you can choose to not take insurance whether as a solo practitioner or a group practice (walk on the right side of the road), or you can take insurance as a group practice (walk on the left side of the road).

If you take insurance as a solo practitioner (walk on the middle of the road), sooner or later, squish! You realize you’ve burned out by working too hard and making too little.

The Math that Proves the Case

Let’s make a few assumptions to see how the math works out.

  • Private pay rate of $175
  • Insurance reimbursement rate of $110
  • Sustainable case load of 1200 sessions/year per clinician (25 sessions a week, 48 weeks a year)
  • Rent $750/month, reasonably usable for one or two full-time clinicians

Case 1: Private-Pay-Only Solo Practice

Assuming you’ve built up to a 25-weekly-sessions case load, your revenue is 1200 annual sessions times $175 per session, or $210,000.

Your typical annual expenses include:

  • $12,000 marketing
  • $9000 rent
  • $6300 merchant card services (3% is typical)
  • $4000 accounting and bookkeeping
  • $2400 office supplies and equipment
  • $1000 malpractice and general liability insurance
  • $700 EHR
  • $600 CEUs
  • $600 phone
  • $400 website domain and hosting
  • $2400 miscellaneous other expenses

To be clear, depending on how you run your practice, your expenses could be much higher or somewhat lower. However, at this level, you come out with about $170,600 annual profit before taxes.

Case 2: Insurance-Only Practice with Three Full-Time Clinicians (Including You)

Since we’re assuming three full-time clinicians, that’s 3600 annual sessions at $100 each, bringing in a top-line revenue of $360,000.

As for costs, let’s start out with practice costs that don’t relate to your associates, and then break down you profits from associate sessions later.

Practice costs, ignoring associates:

  • $9000 rent (for your office)
  • $8400 billing specialist or service for your sessions (7% is typical)
  • $4000 accounting and bookkeeping
  • $2400 office supplies and equipment
  • $1800 merchant card services for your sessions (3% on copays, assuming those are half of your session revenue)
  • $1000 malpractice and general liability insurance
  • $700 EHR
  • $600 CEUs
  • $600 phone
  • $400 website domain and hosting
  • $2400 miscellaneous other expenses

This provides a pre-tax profit of about $88,700 from your own sessions.

Next, let’s look at your average costs per associate session.

  • $50 paid to clinician (50% is fairly common)
  • $3.83 payroll taxes on employee associate pay (in most cases, using independent-contractor associates could get you into serious problems, as I wrote here)
  • $4.70 typical cost of space assuming used 40 hours/week (if not teletherapy)
  • $8.50 receptionist and/or VA support for the practice
  • $7.00 billing specialist
  • $1.50 credit card fee
  • $3 miscellaneous other expenses (e.g., adding clinician to your EHR, malpractice insurance, general liability insurance, workers comp, extra accounting/bookkeeping, payroll processing, etc.)

This leaves you with about $21.50 profit per associate insurance-paid session.

With two full-time associates, this adds $51,600 pre-tax profit to your practice, bringing your practice profit to about $140,300. Add a third full-time associate, and you'll make almost as much profit as you would from going solo as in Case 1 above.

You can make a lot more by bringing in many more associates. For example, bringing in another 4 full-time associates, you'd end up with about $154,800 profit from associates, for a total practice profit of $243,500 before taxes.

However, that means you’ll need to manage and supervise 6 or 7 employees, which may not be your vision for what you'd like to do.

Case 3: Insurance-Only Solo Practice (a.k.a. “Squish!”)

Since we’ve already done the math for this in the first part of Case 2, we can simply copy the bottom line from there - $88,700 before-tax profit.

Since the numbers here are taken from what could be expected in e.g. Maryland, we have to consider state and federal taxes.

Depending on how you set things up and what other income your family may have, you should expect to pay about $27,000 in total taxes on your practice profits at this level. That would leave you less than $62,000 a year to cover all your expenses, as well as saving for financial goals such as:

  • Paying off student debt (if any)
  • Down payment on a house (if you don’t already own and want to buy)
  • Replacing an old car
  • Saving for your kids’ college funds
  • Saving for retirement

In our area of the country, even $100,000 after taxes is not a lot, let alone $62,000. If you choose this scenario, you’ll probably realize you can’t live well doing 25 weekly sessions.

Let’s say you decide to do 35 weekly sessions instead. Here, some of your costs stay the same, but others increase:

  • $11,760 billing specialist or service
  • $9000 rent
  • $4000 accounting and bookkeeping
  • $3000 office supplies and equipment
  • $2520 merchant card services for your sessions
  • $1000 malpractice and general liability insurance
  • $700 EHR
  • $840 phone
  • $600 CEUs
  • $400 website domain and hosting
  • $2400 miscellaneous other expenses

This brings your total profit up to about $131,800. After taxes, that's about $88,900. Better than before, but still not great.

But at what cost?

35 weekly sessions on average means an average of 7 sessions each weekday. However, clients aren’t Lego blocks that you can put wherever you want (in your schedule). You’ll have some days with 5 sessions (whew!), but other days with 9 or more sessions (ouch!!!).

Do you look forward to such a case load over a 30- or 40-year career?

Hello burnout! That’s why I call this the "Squish" scenario.

The Bottom Line

Opening your own practice can bring you a sense of freedom and greatly improve your financial present and future.

However, that’s only if you go on the left side of the road (group practice), or the right side of the road (solo practice without insurance). A solo practice built solely (or even mostly) on insurance clients is a fast road to burnout or a sure road to financial misery.

Disclaimer

This article is intended for informational purposes only, and should not be considered financial or legal advice. You should consult a relevant professional before making any major decisions.

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