The Kmart Effect: What Insurance Has Done to the Price of Therapy

Why your copay isn't the cost of therapy, a full calendar doesn't necessarily mean a thriving therapist, and the way we pay for care may be changing the care itself.

I did something recently that made perfect sense clinically and considerably less sense financially.

I started accepting insurance.

My reasoning was pretty simple. I wanted to make treatment available to people who wanted to work with me but weren't able to pay my private-pay rate. I also believed I could keep providing essentially the same experience.

Same therapist. Same clinical thinking. Same structured treatment. Same assessments. Same resources. Same expectation that we are actually trying to accomplish something rather than meeting every week indefinitely because Tuesday at 3:00 has become part of your routine.

In other words, I thought I could open the doors of Neiman Marcus, turn on the Kmart blue light, and continue operating exactly as before. That has been an education.

What Does Therapy Actually Cost?

If you use insurance for therapy, you may pay $20, $30, $50, or another relatively small amount when you see your therapist. Naturally, that begins to feel like the price of therapy. It isn't. It's the portion of the price that you see.

Insurance pays another portion according to a contracted rate between the insurance company and the clinician or practice. That rate may bear relatively little relationship to what the clinician ordinarily charges or what it actually costs to provide the service. This distinction matters because we humans are very good at anchoring to prices. If something has always cost you $30 and suddenly someone tells you it costs $175, your first reaction probably isn't:

"Ah, fascinating. Apparently a third party has been subsidizing the majority of the actual cost."

It's more likely:

"You want HOW much?"

I don't blame you. I'd rather pay less for things too. But insurance has created an unusual marketplace in mental healthcare because it can obscure what professional care actually costs. And psychotherapy has another complication. A lot of what you're paying for isn't visible.

The Hour You See Isn't Necessarily the Whole Service

Two therapy appointments can look almost identical from the waiting room. Both last about an hour. Both involve a therapist and a client sitting in a room. Both generate the same insurance billing code. But what happens behind those appointments can be quite different.

• Did your therapist conduct a meaningful assessment?

• Do they have a working understanding of what is maintaining the problem you're trying to change?

• Are there identifiable treatment goals?

• Is there a reason they're choosing the interventions they're using?

• Are they measuring whether your symptoms or functioning are actually changing?

• Do they review that information and adjust treatment when something isn't working?

• Is there a plan for eventually not needing therapy anymore?

None of those things are particularly glamorous. They also aren't necessarily visible to you. But they require clinical time and attention. And that's where the economics of insurance become important.

When More Work Doesn't Mean More Reimbursement

Imagine two therapists.

One finishes your appointment, completes the required documentation, and moves on to the next client.

The other finishes your appointment, completes the documentation, reviews your assessment results, thinks through the case, prepares an intervention or resource for the next session, and tracks whether treatment is producing the intended change. Both receive the same payment. The additional work doesn't necessarily create additional reimbursement. It's simply additional work.

That doesn't mean every therapist who accepts insurance provides minimal care, far from it. There are excellent clinicians working within insurance systems every day. It does mean we should pay attention to the incentives we've created. Because a healthcare system that doesn't financially distinguish between doing the minimum required and investing considerably more clinical time has created an interesting problem.

Eventually, something has to give.

Let's Put Some Numbers to This

The economics are easier to understand when we stop speaking in abstractions. Let's imagine two therapists who normally charge $175 for an appointment. Both contract with an insurance company that reimburses them roughly 53 percent of that rate. For simplicity, let's call it $93. Same client hour. Same billing code. Same reimbursement. But they don't necessarily provide the same amount of labor.

Therapist B operates a higher-volume practice. Including the appointment, documentation, and the occasional brief administrative task or message, they spend about 1.25 hours of actual work on that client.

They may see 30 to 40 clients each week.

Therapist A operates a lower-volume, high-touch practice. In addition to the appointment, there may be assessment review, scoring and interpretation, case conceptualization, treatment planning, preparation of individualized resources, outcome tracking, and between-session clinical work. Across the course of treatment, let's estimate that averages about 3.25 hours of clinician time associated with that same appointment.

The insurance company pays both therapists:

$93.

Now remember that therapists aren't simply taking that $93 home.

A private practice is a business. There is rent or office expense, electronic health records, malpractice insurance, licensing, continuing education, technology, payment processing, billing expenses, administrative time, marketing, accounting, taxes, and plenty of other decidedly unglamorous things required to keep a healthcare practice operating. If we estimate business overhead at about 35 percent, our therapist has roughly $60 remaining from that $93 reimbursement before personal taxes. Now divide that by the actual labor.

Therapist B's $60 spread across approximately 1.25 hours of work comes to about $48 per hour.

Therapist A's $60 spread across approximately 3.25 hours comes to about $18.50 per hour.

Before personal taxes. Same insurance reimbursement. Very different economics. And now I want you to forget for a moment that we're talking about therapists.

Imagine this were your job.

You have graduate-level training, professional licensure, ongoing education requirements, legal and ethical liability, and the expense of running your own business. You are told that doing the basic version of your job will effectively pay you about $48 an hour before taxes. But if you spend substantially more time preparing, measuring results, individualizing the work, and providing a higher-touch service, your effective compensation drops to roughly $19 an hour.

How long could you afford to choose the second option?

That's the question that changed the way I think about insurance. It isn't simply that insurance "doesn't pay therapists enough." The more interesting problem is that the reimbursement structure can make doing more for the client financially irrational.

Therapist B can respond by seeing 30 or 40 people each week. Therapist A cannot. Fifteen appointments at 3.25 hours of total labor each already represents nearly 49 hours of work. And that's before running the business itself.

This doesn't mean Therapist B is providing bad therapy. A highly efficient clinician can provide excellent treatment without spending hours outside every appointment. It also doesn't mean every high-touch service improves outcomes merely because someone spent more time on it. But it illustrates the problem. Insurance largely pays for the billable appointment.

It does not necessarily pay for all the clinical architecture surrounding that appointment. So when you wonder why one therapist accepts your insurance and sees 35 people a week while another limits their caseload and charges considerably more, you may not be comparing two prices for the same thing. You may be looking at two entirely different economic models of care. And before deciding that one clinician simply cares more about accessibility than the other, ask yourself:

Would that math work for you?

The Full-Calendar Illusion

There's another assumption I had before entering the insurance world: More clients should mean more money. Seems reasonable. It isn't necessarily true.

A therapist can have a completely full calendar and still have a surprisingly strained business. Insurance-based practices often depend on volume because each clinical hour produces less revenue. More volume means more appointments, more documentation, more administrative work, more claims, and less available time between clients.

So the therapist looks enormously successful. Their calendar is packed. They may also be exhausted. And the business may not be particularly profitable. That matters to you as a client because clinician economics eventually become clinical economics. There are only so many ways to solve the problem.

• See more people.

• Spend less time preparing.

• Offer fewer resources outside appointments.

• Reduce administrative costs.

• Limit between-session availability.

• Increase private-pay services.

• Stop accepting certain insurance plans.

Or leave insurance entirely. None of those choices automatically make someone a good or bad therapist. They're responses to the structure in which the therapist is practicing.

Did Insurance Create Bad Therapy?

I've thought a lot about this question. There are absolutely therapists who aren't particularly good at what they do. That's true in every profession. Some clinicians are poorly trained. Some haven't continued developing their skills. Some provide supportive conversation when the person sitting across from them actually needs structured treatment. But accepting insurance made me consider another possibility.

What if the system itself sometimes nudges therapy in that direction? If a therapist receives the same reimbursement whether they spend additional time assessing, measuring, preparing, and conceptualizing or simply move from appointment to appointment, what behavior does the system encourage? Not intentionally.

But incentives don't have to be intentional to work.

A therapist may begin a career determined to give every client enormous amounts of attention outside the session. Then the caseload grows. The paperwork grows. The administrative responsibilities grow. Eventually, there are 25 or 30 people on the calendar and only so many hours in a week.

Something gets trimmed. Perhaps first it's the extra resources. Then preparation. Then measurement. Eventually treatment can drift toward something much easier to deliver at volume: Come in. Tell me what happened this week. We'll talk about it. See you next Tuesday.

For some people, supportive therapy is entirely appropriate. But when someone is seeking treatment for a specific clinical problem, support and treatment aren't necessarily the same thing. That's the part I think we need to talk about.

My Own Blue-Light Experiment

When I began accepting insurance, I initially tried to preserve almost everything I provided within my private-pay model. I wanted insurance to change how treatment was paid for, not how I practiced. That turned out to be an important experiment.

Some clients embraced everything. They wanted the assessments. They used the materials. They completed the work between appointments. They wanted to understand the treatment plan and see their progress.

Others really just wanted the appointment.

And I don't say that critically. It taught me something.

What I consider valuable as a clinician isn't necessarily what every client considers valuable.

If you want an hour each week to talk through what is happening in your life, additional assessment, measurement, structured materials, and between-session work may feel unnecessary. If you want focused treatment for trauma or anxiety with clear goals and an expectation that treatment eventually ends, those same things may be very important to you.

Neither person has to be wrong. But they may be shopping for very different products, and insurance has made those products look remarkably similar.

The Neiman Marcus Problem

Here's where consumers do have some responsibility. We all want the best thing for the lowest price. That's normal. But sometimes we also need to ask what we're actually purchasing. If you choose a clinician primarily because they're in-network, that's a perfectly reasonable choice. If you choose based primarily on your copay, that's also your choice. But price and quality aren't interchangeable. An expensive therapist isn't necessarily an excellent therapist. An insurance-based therapist isn't necessarily providing lesser treatment. And a therapist who doesn't accept your insurance isn't necessarily greedy or unconcerned about access. Sometimes you're looking at different business models designed to support different levels or types of service.

The important question isn't simply:

"Do you take my insurance?"

It's also:

"What am I actually getting?"

• Ask how the therapist approaches your particular problem.

• Ask how they'll know whether you're improving.

• Ask whether there will be treatment goals.

• Ask what you should expect to be doing between sessions.

• Ask how often they reassess progress.

• Ask what happens if treatment isn't working.

• And one of my favorites:

  
  

Ask what graduating from therapy looks like. A good clinician should be able to have that conversation with you.

So Who Broke the Store?

Insurance deserves significant responsibility for the strange marketplace we've created. It has taught consumers to associate psychotherapy with a relatively small copay while asking clinicians to operate businesses on reimbursement structures that often reward volume more readily than additional clinical effort.

Clinicians participate too.

We agree to contracts. We decide what we're willing to provide within them. And sometimes we continue offering unsustainable levels of unpaid work long enough to become frustrated with the people receiving it.

That's our responsibility to fix.

Consumers have a role as well. You get to decide what kind of treatment you want, how much you value it, and what you're willing or able to spend on it. But it's worth understanding that a lower visible price doesn't mean the underlying service suddenly costs less to provide.

I went into insurance believing I could simply put a blue light in Neiman Marcus and invite more people through the doors. I've learned that it isn't quite that simple. Access matters. Quality matters. Sustainability matters. And occasionally those values pull against one another.

Maybe the real Kmart Effect is that we've spent so long hiding the actual economics of psychotherapy that everyone has become confused about what the product should cost, what should come with it, and who should pay for the difference. That's worth talking about. Because when the economics of healthcare begin shaping the way care is delivered, the person sitting on the couch has a reason to care about the business model too.