How to Seamlessly Terminate an Insurance Contract

You may need to end an insurance contract for a variety of reasons, such as failing to reimburse you according to contract provisions, spending too much time chasing your reimbursement, creating additional costs, excessive administrative expectations, or because the contract is not supporting the practice with a steady flow of clients or competitive rates.

Ending an insurance contract might seem like a big step, but it’s simple. You just need to do a little planning.

Predict the Worst

The first thing you want to do is determine how much income you could lose by terminating the insurance contract. Start by counting how many weekly clients you have using that payer. Multiply that by the contracted rate. Multiply that number by four weeks. The amount you end up with is the maximum amount of money you could lose in your first month without that insurance. Now you know what you need to budget for. Knowing this can help you plan.

Expect the Best

It’s unlikely that you’ll lose all the clients from that payer (especially if you’re willing to provide documentation for out-of-network benefits). Don’t get attached to irrational thoughts about having to eat Top Ramen for the rest of the year. Calculating the worst-case-scenario gives you the highest possible number you’d need to budget for if you don’t get any new full fee clients.

Now, figure how many full-fee clients you’ll need to add to make up for the loss. When I did the above calculation using the rate from an insurance contract I recently terminated, I learned that if I lose 12 clients, I only needed to add five full-fee clients to my caseload to make up for the loss.

Review Your Contract

In most cases, you can terminate an insurance contract with written notice 90 days in advance. I’ve heard of some wacky contracts though, so make sure you read yours.

Plan Your Budget

Once you’ve determined how much notice you need to give to the insurance company, it’s time to start planning. First decide if you need to ramp up your caseload for a few months prior, whether you’ll cut back your spending, or do a little of both. For those with plenty of full-fee clients calling or few clients affected by the termination, you may not need to plan for any changes in your budget.

Give Clients Plenty of Notice

Letting clients know at least a few months in advance can reduce their stress (and yours) significantly. You never want to rush referrals, discharges, or changes to client fees.

Give clients written and verbal notice. When I’m making a change that affects clients, I talk with the client during a session first. Then I let them know that a form needs their signature and it will be coming through the patient portal that week. Now they know to look for it and I won’t have to follow up later.

Here’s some verbiage for your client letter if you’re at a loss for words:

Dear Clients,

Starting [date], I will no longer be contracting with [insurance company name]. This means if you are a member of [insurance company], I will no longer bill for your appointments. You’ll pay [an agreed-upon fee or your standard fee] for your appointments using the credit card on file. Here are some options to consider.

Using Out-of-Network Insurance Benefits: Your [insurance company name] plan may still cover a large portion of your therapy costs if you have “out-of-network” benefits for mental/behavioral health. Look up your plan details (specifically under the out-of-network Mental Health Outpatient Services). If you don’t have out-of-network benefits, consider switching to a plan that does during the Open Enrollment period.

Getting reimbursement using your out-of-network benefits is easy. Just log in to the patient portal and print your “superbills.” They will have all the information your insurance company will need to process a claim for you. They will send you a check in the mail for whatever portion is covered, usually within a couple of weeks.

Health Savings Accounts: Counseling is eligible for reimbursement with a flexible spending account (FSA), health savings account (HSA), and health reimbursement account (HRA). These are tax-advantaged savings accounts that allow you to use pre-tax money toward your therapy sessions. This way, you get the full value of your dollar (no taxes) and you reduce your income (lower taxes overall).

I’m happy to speak with you about any questions you have regarding these changes. Please bring your questions to your next appointment.

BY SIGNING BELOW I AM AGREEING THAT I HAVE READ, UNDERSTOOD, AND AGREE TO THE ITEMS CONTAINED IN THIS DOCUMENT.

[Insert signature fields]

Plan for Client Discharges

While clients generally have a right to terminate treatment at any time and for any reason, not so with therapists! We are under the ethical and legal duty to refer the client to another therapist or treatment facility. Proper termination requires the therapist to consider whether a referral is necessary or appropriate, and if so, how will the referral be handled.

When I terminated a recent contract with an insurance company, I gave clients notice three months in advance and offered them a fee that was lower than my full fee but higher than what I was receiving from their insurance company. I did this because my full fee was significantly higher than what clients were accustomed to paying and it would have been cost-prohibitive for all of them. Some clients stayed and used their out-of-network benefits. A few were ready for discharge, and this gave them the nudge they needed to do it. Some clients transitioned to a new therapist.

I can’t stress enough how important it is that terminations, referrals, and other arrangements be made in a clinically appropriate manner.

Terminate the Contract

Look ahead at the date you’d like to have your contract terminated. If you’re looking at several discharges or referrals, you’ll want to account for the extra time you’ll need to help clients through these transitions.

Once you decide to terminate a contract, write a letter to the payer stating your intention to terminate the contract. Your contract may spell out a contact person for contract-related issues—if it does, send your letter to that person at the address specified in the contract. Otherwise, address the letter to the contract's administrator or official who deals with contract terminations. In any case, send it by certified mail with a return receipt requested so there is no ambiguity about whether or not the payer received the letter. Follow up with a phone call or email to make sure they received your letter.

Here’s an outline of the letter I recently sent to an insurance company ending the contract:

[ Date ]

Via certified mail with return receipt

Re: Contract # ___________

Dear [ Name ],

This letter will serve as notice that I am terminating my contract with [ insert name of plan ] effective [ insert date ]. Pursuant to [ insert section or article of contract ], I am providing 90 days' notice with this letter. Therefore, the effective termination date will be 90 days from the date of this notification, or [ insert date ].

Thank you for the opportunity to provide quality mental health care services to your participants. Please feel free to contact me with any questions or if you require any additional information.

Yours truly,

[ Insert name ]

Sample insurance termination letter adapted from Five Steps to Terminate Managed Care Contracts at http://www.hcpro.com