Captive Insurance Addresses Coverage Gaps in Psychedelic Care

Psychedelics have been touted in recent years as a more efficacious psychiatric-treatment alternative to costly prescription drugs that are often riddled with side effects, but because of a long-held stigma and legal obstacles, finding adequate and affordable insurance in the commercial market to guard against risks and exposures has been a struggle. 

Despite growing support for psychedelic treatments, along with promising regulatory changes, they are still classified by the US federal government as Schedule I substances alongside dangerous drugs like heroin.  

Insurers often include an exclusion to restrict coverage for this category, explains Grace Topete, director of business operations and senior account manager for Helio Risk, LLC. They extend to group health benefits and medical malpractice as well as professional, general, and product liability; directors and officers; property; and cyber coverages for business related to psychedelics.  

Captive insurance, however, can fill these traditional coverage gaps for facilitation centers, as well as organizations that do research or offer advocacy in the psychedelic-assisted care space—allowing them to make these alternative and efficacious treatments available to wider populations, she says.  

Matt Grimes, a business attorney and policy adviser specializing in plant medicine law and regulatory strategy who serves as chief insurance officer of the National Psychedelics Association (NPA), is in the process of bringing to market sometime this summer an association captive insurance company model for NPA members domiciled in Nevada for psilocybin-assisted care. Psilocybin is a naturally occurring tryptamine alkaloid also known as "magic mushrooms." 

Along with receiving affordable insurance, members of this group captive will also have opportunities to elevate their education, quality standards, and compliance support under a unified framework.  

Developing a homogeneous group captive for psychedelic facility operators has involved conducting a feasibility study, releasing an actuarial report, and raising enough capital to pass muster with regulators. Roughly half of the licensed psychedelic service centers in Oregon and healing centers in Colorado where psychedelics have been decriminalized are NPA members.  

The captive could serve other parts of the US. New Mexico, for example, created a supervised medical psilocybin program for patients who qualify that is expected to be fully implemented by the end of next year. Several cities and counties in California, Michigan, and Washington, DC, also have decriminalized psychedelics.  

Governments that oversee and license providers and businesses that dispense psychedelics have rigorous training and continuing education requirements, as well as a tight chain of custody. 

"The financial risks from an insurance standpoint are significantly mitigated by a robust risk control and regulatory framework," Ms. Topete explains, noting that such guardrails are helping reduce the stigma associated with psychedelics.  

Promising Research 

These drugs are increasingly being perceived in a positive light. A number of clinical trials involving psychedelics have shown promising results for treating depression, treatment-resistant depression, post-traumatic stress disorder (PTSD), anxiety, substance use disorder, suicide, suicidality, end-of-life distress and chronic pain, Mr. Grimes reports.  

Other notable studies include psilocybin for smoking cessation, the use of LSD (which stands for lysergic acid diethylamide and is commonly known as "acid") to treat anxiety, and Ibogaine, which is widely recognized for its off-label use in mitigating opioid and cocaine addiction, notes Sherry Rais, cofounder and CEO of Enthea, a company that offers innovative employee benefits with access to ketamine and psychedelic therapies for more than three million covered lives. Popular podcaster Joe Rogan has been a big advocate for Ibogaine.  

President Donald Trump recently signed an executive order to accelerate medical research and access to psychedelics to treat PTSD, anxiety, and depression, which has earned bipartisan support. Within days of the signing, Ms. Rais says the Food and Drug Administration (FDA) granted vouchers to three companies to fast track the approval of psychedelics.  

Much of that executive order was based on information that had been shared about the plant-based psychoactive drug Ibogaine and its efficacy, Mr. Grimes says. Methylenedioxymethamphetamine, known as MDMA for short or by its street name, Ecstasy, in pill form, is in the late-stage development for FDA approval for these treatments, while two of the three vouchers granted were for psilocybin-related treatments, according to Mr. Grimes. In fact, the FDA has designated MDMA, psilocybin, and LSD—all of which are still Schedule I substances—as breakthrough therapies to expedite their approval process. 

Psychedelic-assisted therapies are "an option that is safer than most people think," Ms. Topete says, adding that the published results have been have been "astonishingly positive." 

As many as 60 percent of people do not respond to psychiatric medications or talk therapy, Ms. Rais says. She also points out that 57 percent of people on psychiatric meds have to take a secondary medication to deal with side effects.  

"We've been studying these medicines for a while, and different civilizations have been using them for millennia, depending on the substance," Ms. Rais notes. "They don't seem to have long-term side effects. People can feel nauseous or dizzy or get a headache, but that's not persistent." 

Ms. Topete says her clients report that the regulated use of psychedelics, which are most often taken as a gel cap or in tea, is naturally self-limiting and nonaddictive. Dosing is approved by states where the medications are legal at well below levels that are known to be safe.  

There's also a compelling argument to be made that psychedelics are far less expensive than commonly prescribed psychiatric medications.

Consider, for instance, the branded version of ketamine, Johnson & Johnson's Spravato. Covered by traditional health insurers, sales of the drug doubled last year to nearly $2 billion and had been doubling in previous years. Costing patients $45,000 a year, Ms. Rais says it's not as clinically effective as generic ketamine coupled with psychotherapy, which runs no more than $6,000 a year.  

Risky Business 

Even with a growing body of evidence in its favor, psychedelics involve clinical, legal, and reputational risks, especially if a treatment program lacks strict protocols and provider oversight, observes Adam Perea, executive vice president of captive programs and services at Elite Risk. 

Noting that these substances are considered illegal at the federal level, he says that in some cases, the Drug Enforcement Administration (DEA) might need to become involved if there's overprescribing in states that regulate its usage or if an individual is on a certain prescription for a prolonged period and the dose keeps rising.  

The DEA, in fact, conducted a major joint investigation into the 2023 ketamine overdose of actor Matthew Perry alongside the Los Angeles Police Department and US Postal Inspection Service. Ms. Rais cautions that the drug works differently in the body than a classic psychedelic.  

Insurers are beginning to view psychedelic-assisted treatment as a specialized form of behavioral health care that has an additional layer of medical and regulatory considerations built into it. "The emphasis is far less on the medicine itself and more on the quality of patient care and continuum of care that is available to anyone undergoing these services," Mr. Grimes explains.  

Of all the primary risks and exposures associated with psychedelic treatments and operations, he reports that the most pressing need is securing professional liability insurance in conjunction with a broad general liability policy. Those lines of coverage would help facility operators manage patient-screening failures, inadequate informed consent, and improper supervision, just to name a few possible claims scenarios.  

Ms. Topete says it is important for risk control to screen patients diagnosed with certain mental health conditions that are contraindicated for psychedelic use, which means they may cause severe or life-threatening harm. One such example would be an allergy to mushrooms found in psilocybin. By and large, any adverse physical reactions are usually confined to nausea or headaches—nothing extreme, she adds. 

Mr. Perea recommends starting with a narrow, well-managed behavioral health benefit that expands over time as the arrangement becomes more comfortable and manageable. "If you just open up the floodgates, it's going to result in a bunch of fraud and abuse," he warns. 

Employers that are interested in offering psychedelics to supplement their behavioral mental health benefits would have to almost create a difference-in-conditions policy, Mr. Perea explains. They also would need to ensure that the treatment isn't detrimental to employees or their own personal business risk. In addition, guardrails would need to be in place to maintain a safe workplace. 

"Do you want your forklift driver to take in meds before or during work that are going to affect his spatial awareness?" he asks, noting the danger of impaired job performance. 

Another issue might involve giving an employee who is receiving psychedelic treatments time off from work to see how they adjust to their new treatment plan, he adds. 

Mr. Perea has seen a cultural shift in thinking about the use of drugs to treat various conditions. "A lot of people just think medication is going to solve the problem," he says. "I think that's exacerbating the problem because you're not truly dealing with things."  

While believing psychedelics can help serve as a safer alternative to prescription drugs, he cautions that "if you're not digging to the root cause of the problem, then you're just forever relying on this psychedelic treatment to ignore the root of the problem." 

As more individuals experience psychedelic treatment sessions, Mr. Grimes believes underwriting can become more predictable, coverage options may well broaden and prices should fall as claims data develops.  

"Over time, psychedelic-assisted care could evolve from this emerging risk category into a recognized behavioral health care specialty that would be supported then by more mature insurance products and actuarial data, and importantly, the establishment of professional standards," he says.