What Is Medical Necessity in Insurance?

Medical necessity is one of the most common—and frustrating—reasons insurers deny claims. But what does "medically necessary" actually mean? And why do insurers use this vague term to reject coverage?

This guide breaks down medical necessity definitions, criteria, and how you can use this knowledge to fight denials.

The Official Definition of Medical Necessity

According to most insurance policies, a service or treatment is "medically necessary" if it:

• Appropriate: Consistent with your diagnosis and clinical standards of care
• Evidence-based: Supported by peer-reviewed medical research and guidelines
• Essential: Required to diagnose, treat, or manage your condition
• Cost-effective: Not more expensive than equally effective alternatives
• Non-experimental: Proven effective through clinical trials and FDA approval

How Insurers Determine Medical Necessity

When your doctor submits a claim or pre-authorization request, the insurance company reviews it through several lenses:

1. Clinical Guidelines

Insurers compare your case against established medical guidelines from organizations like:

• American Medical Association (AMA)
• National Institutes of Health (NIH)
• Specialty medical societies (e.g., American College of Cardiology)
• FDA approval status for medications and devices

2. Policy Language

Your insurance contract defines what's covered. Insurers look for exclusions or limitations that might apply to your treatment.

3. Cost Comparison

If a cheaper alternative exists—even if less effective—insurers may deny coverage as "not medically necessary."

4. Administrative Review

Many denials come from non-physician reviewers applying standardized algorithms. Your unique circumstances may be ignored.

Common Medical Necessity Denial Scenarios

Insurers frequently deny these types of claims as "not medically necessary":

• Cutting-edge treatments: Newer therapies lacking extensive research (even if FDA-approved)
• Out-of-network specialists: Specialized care deemed available in-network
• Extended therapy: Physical therapy, mental health, or rehabilitation beyond "typical" duration
• Advanced diagnostics: MRI, PET scans, genetic testing when cheaper options exist
• Brand-name medications: When generics are available, regardless of efficacy differences
• Preventive procedures: Surgeries to prevent future complications (e.g., prophylactic mastectomy)

Your Legal Rights Regarding Medical Necessity

Federal and state laws protect patients from arbitrary medical necessity denials:

Affordable Care Act (ACA) Protections

Insurers must cover "essential health benefits" deemed medically necessary, including:

• Emergency services
• Hospitalization
• Maternity and newborn care
• Mental health and substance abuse treatment
• Prescription drugs
• Rehabilitative services

ERISA Requirements (Employer Plans)

If you have employer-sponsored insurance, ERISA requires:

• Clear explanation of denial reasons
• Right to appeal within specific timeframes
• Access to your claim file and denial documents
• External review by independent medical experts

State Mandates

Many states have additional protections:

• Mental health parity: Mental health coverage equal to physical health
• Autism therapy: Applied Behavior Analysis (ABA) coverage mandates
• Cancer treatment: Coverage for off-label uses of FDA-approved drugs
• Infertility treatment: Required coverage in some states

How to Challenge Medical Necessity Denials

When insurers claim treatment isn't medically necessary, you can overturn the denial by demonstrating it meets their own criteria:

Step 1: Get Your Doctor's Support

Request a detailed letter of medical necessity that includes:

• Your complete diagnosis with ICD-10 codes
• Specific reasons why treatment is essential
• Alternative treatments tried and failed
• Clinical research supporting the treatment
• Expected outcomes and risks of not treating

Step 2: Cite Clinical Evidence

Reference peer-reviewed studies, clinical guidelines, and FDA approvals that support your treatment. Learn how to prove medical necessity

Step 3: Quote Your Policy

Find language in your insurance contract that requires coverage for your condition. Insurers must follow their own rules.

Step 4: Address Cost Objections

If cheaper alternatives exist but are ineffective for your case, document why with medical evidence.

Medical Necessity vs. Other Denial Reasons

Understanding the difference helps target your appeal:

• Not medically necessary: Treatment isn't essential or evidence-based
• Experimental/investigational: Treatment lacks sufficient research or FDA approval
• Not covered benefit: Treatment type excluded from your policy
• Out of network: Provider not in insurance network

Learn the difference between medical necessity and experimental denials

The Bottom Line

"Medical necessity" is supposed to protect patients from unnecessary treatments. In practice, insurers weaponize it to deny legitimate claims and boost profits.

But you have rights. With proper documentation and a strong appeal letter, you can force insurers to cover the care you need.