Managed care raises fundamental questions about the moral presuppositions of mental health insurance coverage. Which kinds of mental suffering create a legitimate claim for assistance from others through health insurance? When should individuals be responsible for correcting their own deficits of happiness or well-being, or for the disadvantages they suffer? And even if society concludes that an individual is entitled to assistance from others, when does this obligation fall to friends, families, or other social agencies, rather than to the health insurance system? This paper attempts to address these questions.

The concept of “medical necessity” is currently the major tool for allocating public and private insurance monies. Medicare and Medicaid both determine coverage by reference to “medical necessity,” and with regard to managed care, the Institute of Medicine concluded that “utilization review decision(s) invariably turn on whether a treatment of service is ‘medically necessary.’” To promote equitable access to mental health care, we must first understand how “medical necessity” actually functions in practice as a principle of allocation and gatekeeping.

Many insurance administrators believe that judgments about medical necessity in mental health are less precise than similar judgments in other areas of medicine. As a result they fear that if mental health services were given parity with other medical services – a primary objective for the American Psychiatric Association - insurance funds will be siphoned into a “bottomless pit.”