Colorado health insurers are forbidden to deny coverage of medically necessary mental-health and substance-abuse treatment and must use nationally accepted standards in making their decisions, according to a new law whose regulations are being finalized.
The new rules are the result of House Bill 1002, a measure that passed early in the 2025 session with bipartisan support and sponsorship. It aims to bring down what healthcare advocates have called is a disturbingly high level of claims denials for behavioral-health services amid a potpourri of insurance-company standards that can vary widely.
Insurers have been required to offer behavioral-health services in parity with the level of physical-health services that providers offer for nearly two decades, thanks to a law signed by former President George W. Bush. But because the implementation of the law was extremely slow and questions about what represents parity still abound, a quartet of legislators felt compelled to pass this new law to reiterate what coverage the state expects.
“We’re facing a crisis in this state around mental-health access and coverage,” cosponsoring Rep. Lindsay Gilchrist, D-Denver, told the House Health and Human Services Committee when presenting the bill on Jan. 29. “We need clarity on why insurance companies are denying coverage, and we need to set standards of practice like we have for physical health care. Mental health is just as important as physical health.”
How the new law impacts patients and insurers
The new law, whose draft rules recently were released by the Colorado Division of Insurance, accomplishes this in broad swath by requiring that insurers approve medically necessary treatment for behavioral-health and substance-abuse-disorder treatments. It does this more specifically by requiring insurers to follow clinical criteria developed by a host of nationally recognized associations like the American Medical Association, and it requires them to offer a detailed explanation if they deny coverage.
For Colorado employers, this means that insured workers are more likely to receive requested services in these areas. Behavioral-health services nationally get denied at more than twice the rate of physical health services, Healthier Colorado Policy Manager Alexis Alltop told the committee in January. And the 1.1 million Coloradans with a diagnosed mental-health condition are nine times more likely to be forced to choose an out-of-network provider for behavioral health care, the organization said.
For insurers, the new law means that they will have to abide by national standards rather than internal policies in choosing which treatments to allow and deny. And it means that they must conform to one more set of state regulations, though these new rules are not considered anywhere near as costly as some other coverage mandates that legislators have imposed on them over the past decade.
Insurers worked with bill sponsors — who also included Democratic Rep. Kyle Brown of Louisville, Democratic Sen. Judy Amabile of Boulder and Republican Sen. Byron Pelton of Sterling — to make several key changes to the bill as it progressed.
Still a fear of increasing premiums, insurers say
They broadened the nationally accepted standards of care to include those offered by 13 different national health-specialty associations rather than limiting them to a particular standard that several insurers warned could lead to more expensive treatments. They eliminated language requiring health plans to automatically approve the next higher level of care if a recommended setting is unavailable — a requirement that could have resulted in unnecessary hospitalization, some warned. And they delayed implementation of the new law until Jan. 1.
While these salved the biggest fears that some insurers expressed, several concerns remain, said Kevin McFatridge, executive director of the Colorado Association of Health Plans. The still-narrow definition of acceptable clinical criteria may limit insurer flexibility and drive inappropriate costly care, and there remains a risk that premiums could rise if controversial services like equine therapy or wilderness camps are deemed medically necessary, he said.
The requirements come at a time when most insurance premiums regulated by the Colorado Division of Insurance — those in the small-group and individual markets — are facing significant increases in 2026 because of a declining federal and state subsidies. The primary issue driving the continued federal-government shutdown is a push by Democrats to add into a spending bill the one-year extension of enhanced premium tax credits that have limited individuals to paying no more than 8.5% of household income for premiums.