Should Therapists Take Insurance When Starting a Private Practice?
A practical look at the pros and cons of joining insurance panels
For therapists stepping into private practice, few decisions feel as overwhelming as whether or not to take insurance. It’s not just a logistical choice—it’s financial, clinical, ethical, and emotional. And while it can be tempting to look for a one-size-fits-all answer, the truth is… it’s complicated.
Whether you're a newly licensed LMHC, LCSW, LPC, or psychologist, or you're still in grad school dreaming of having your own practice, understanding the pros and cons of insurance can help you chart a more intentional path forward.
Let’s break it down.
The Benefits of Taking Insurance
1. Easier Access to Clients
Insurance companies often list paneled providers in searchable directories. According to a 2022 survey by SimplePractice, 57% of providers who accept insurance reported more consistent client referrals compared to those who only accept private pay (SimplePractice, 2022). For new therapists, this can ease the pressure of marketing and help build a caseload more quickly.
2. Increased Affordability for Clients
Accepting insurance allows clients to use their benefits, which often significantly reduces out-of-pocket costs. This can make therapy accessible to a broader, more diverse group of clients—especially those who may not otherwise be able to afford weekly sessions. The American Psychological Association emphasizes that insurance can help reduce mental health disparities in underserved populations (APA, 2023).
3. Exposure to a Variety of Clinical Presentations
New clinicians often benefit from the high volume and variety of clients that can come through insurance panels. This can be valuable in honing diagnostic skills and clarifying the kinds of clients you most enjoy working with. While not often discussed as a direct perk, this broad experience can be instrumental in the early years of private practice.
The Drawbacks of Taking Insurance
1. Lower Reimbursement Rates
Insurance companies typically pay less than the therapist’s full fee. According to a 2023 report by TherapyNotes, average reimbursement rates ranged from $60 to $120 per session depending on region and license, while private pay fees were often $150–$200 or more (TherapyNotes, 2023). This pay gap can lead therapists to increase their caseloads, sometimes at the expense of energy and effectiveness.
2. Administrative Load
Filing claims, verifying benefits, handling denials, and chasing down payments can consume a significant amount of time. Even with electronic health record systems or billing services, many therapists find that the administrative load can contribute to burnout. The American Counseling Association reports that reimbursement and paperwork challenges are among the top reasons therapists choose to opt out of insurance networks (ACA, 2022).
3. Diagnostic and Treatment Constraints
To obtain insurance reimbursement, therapists are required to provide a billable diagnosis—often after just one session. This can create ethical tension, especially if the client is experiencing situational distress or doesn’t meet criteria for a DSM diagnosis. Additionally, treatment plans and session limits may be dictated by insurance guidelines rather than clinical judgment, which can feel restrictive to both therapist and client.
Taxes and Insurance
Whether you accept insurance or not, you’re still self-employed—and that means taxes are on you. But how you get paid can affect the details of your tax prep.
Accepting Insurance
When you accept insurance, you're typically paid by the insurance company (or via a third-party billing service). These payments are recorded as business income. You’ll still need to report every dollar you earn, just like private pay, but the paper trail is a bit clearer: you’ll likely get 1099 forms from insurers or billing services, which simplifies documentation.
That said, therapists who take insurance often deal with:
Delayed payments, which can complicate cash flow planning.
Chargebacks or audits, which could result in repaying insurance companies if sessions are denied retroactively.
Higher administrative costs, which are deductible but can eat into profits.
Not Accepting Insurance
If you’re private-pay only, you’re likely collecting fees directly from clients (either through a payment processor like Stripe or via EHR platforms). This setup gives you more financial control and faster access to your income—but it also means tracking everything yourself. No 1099s. No middleman.
Private pay practices often:
Set their own rates, which may lead to higher gross income.
Spend more on marketing (also deductible!).
Face fewer billing complications, resulting in simpler bookkeeping.
The Tax Bottom Line
No matter your model, you’ll owe:
Federal and state income taxes
Self-employment tax (currently 15.3% for Social Security and Medicare)
Quarterly estimated tax payments (to avoid penalties)
Pro tip: Keep detailed records of your business expenses—including EHR subscriptions, billing software, liability insurance, CEUs, marketing, and home office costs. These can significantly reduce your taxable income. Consider working with a tax professional who understands small healthcare businesses.
Things to Consider Before You Decide
The answer isn’t one-size-fits-all. Some therapists thrive on insurance panels. Others prefer to stay completely out-of-network. Some start with insurance and gradually transition away. Your choice can evolve with time, your values, and your business needs.
Here are a few questions to help you reflect:
What kind of clients do I want to work with?
What’s my financial situation right now—and how much risk can I take?
How comfortable am I with marketing myself?
Do I have the bandwidth to deal with insurance logistics?
What kind of lifestyle do I want my practice to support?
There’s no “wrong” way to build a private practice. Your decision about insurance doesn’t define your worth, your skill, or your success. It’s just one of many choices you’ll make as you grow into the therapist you’re meant to be.
If you’re overwhelmed by all the options, that’s okay. Most of us are figuring it out as we go. You can always start somewhere and pivot later. You’re allowed to change your mind.
So the real question is: when it comes to building the practice you actually want… are you better off taking insurance—or not?
References
American Counseling Association. (2022). To panel or not to panel: What counselors should know about accepting insurance.
https://www.counseling.org
American Psychological Association. (2023). Stress in America report: Mental health and access disparities.
https://www.apa.org
Internal Revenue Service. (2023). Self-employed individuals tax center. https://www.irs.gov/businesses/small-businesses-self-employed/self-employed-individuals-tax-center
SimplePractice. (2022). Private practice insurance guide.
https://www.simplepractice.com
TherapyNotes. (2023). Should I accept insurance in my private practice?
https://www.therapynotes.com