How do I appeal a CARC 167 denial?

Primary argument: The billed diagnosis is a clinically documented mental-health condition, and mental-health and substance-use-disorder services are one of the ten essential health benefit categories that ACA-compliant individual and small-group plans must cover — including behavioral-health treatment such as psychotherapy and counseling — so a 'diagnosis not covered' adjudication is presumptively either an error or an undisclosed exclusion. Demand that the payer identify the specific plan provision, exclusion language, and written coverage policy under which the diagnosis was deemed non-covered, consistent with the disclosure obligations MHPAEA places on group health plans and issuers. Supporting points: Where the plan is ACA-compliant individual or small-group coverage, Marketplace plans cannot deny coverage or charge more based on pre-existing conditions, including mental-health and substance-use-disorder conditions — a diagnosis-level denial must be reconciled with those obligations. Where the denied diagnosis is autism spectrum disorder, all 50 states plus D.C. have enacted laws requiring insurance coverage of ASD treatment, so a fully-insured plan's diagnosis exclusion likely conflicts with the applicable state mandate. If the diagnosis exclusion list applies only to mental-health conditions while comparably treatable medical conditions remain covered, parity rules prohibiting more-restrictive limitations on MH/SUD benefits warrant scrutiny, and the practice can escalate via a parity complaint to the state insurance commissioner, DOL, or HHS using APA's template letters. If the denial reflects a coding or adjudication issue rather than a true exclusion, the clinical record establishing the accurate, specific primary diagnosis supports reprocessing — pair the appeal with a corrected claim where appropriate.

What public sources support a CARC 167 appeal?

X12 — Claim Adjustment Reason Codes (official): Official wording of CARC 167 (last modified 07/01/2017) (https://x12.org/codes/claim-adjustment-reason-codes) | CMS — The Mental Health Parity and Addiction Equity Act (MHPAEA): MHPAEA parity standard (MH/SUD limits no more restrictive than med/surg), disclosure requirements on plans and issuers, and the caveat that MHPAEA does not itself mandate MH/SUD coverage — the ACA's essential-health-benefit requirement for individual and small-group plans does (https://www.cms.gov/marketplace/private-health-insurance/mental-health-parity-addiction-equity) | HealthCare.gov — Mental health & substance abuse coverage: All Marketplace plans must cover MH/SUD services as essential health benefits, including psychotherapy and counseling; pre-existing mental-health conditions are covered; parity protections apply (https://www.healthcare.gov/coverage/mental-health-substance-abuse-coverage/) | NCSL — Autism and Insurance Coverage State Laws: All 50 states plus D.C. have enacted statutes requiring insurance coverage for autism spectrum disorder treatment, including ABA (https://www.ncsl.org/health/autism-and-insurance-coverage-state-laws) | American Psychiatric Association — Parity (Fair Insurance Coverage: It's the Law): Filing parity complaints with the state insurance commissioner, DOL, or HHS, with template complaint letters by plan type (https://www.psychiatry.org/psychiatrists/practice/parity)

CARC Code

CARC 167 Denial Appeal

Diagnosis not covered

This (these) diagnosis(es) is (are) not covered. Usage: Refer to the 835 Healthcare Policy Identification Segment (loop 2110 Service Payment Information REF), if present.

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Why CARC 167 hits behavioral-health claims

Behavioral-health claims ride on ICD-10 F-codes and Z-codes that payers screen against diagnosis-level edit lists, so CARC 167 lands on therapy claims in predictable ways: couples/family sessions (90846/90847) billed with Z-code relational diagnoses the plan labels 'not a covered mental disorder'; autism-related services denied under legacy carve-outs despite state mandates; SUD diagnoses excluded by older or non-compliant plans; and EAP or behavioral carve-out vendors applying a narrower covered-diagnosis list than the medical plan itself. It also fires on plain coding artifacts — a nonspecific F-code, a truncated ICD-10, or a mis-ordered diagnosis pointer — which adjudicate identically to a true exclusion.

The winning argument

The billed diagnosis is a clinically documented mental-health condition, and mental-health and substance-use-disorder services are one of the ten essential health benefit categories that ACA-compliant individual and small-group plans must cover — including behavioral-health treatment such as psychotherapy and counseling — so a 'diagnosis not covered' adjudication is presumptively either an error or an undisclosed exclusion. Demand that the payer identify the specific plan provision, exclusion language, and written coverage policy under which the diagnosis was deemed non-covered, consistent with the disclosure obligations MHPAEA places on group health plans and issuers.

Where the plan is ACA-compliant individual or small-group coverage, Marketplace plans cannot deny coverage or charge more based on pre-existing conditions, including mental-health and substance-use-disorder conditions — a diagnosis-level denial must be reconciled with those obligations.
Where the denied diagnosis is autism spectrum disorder, all 50 states plus D.C. have enacted laws requiring insurance coverage of ASD treatment, so a fully-insured plan's diagnosis exclusion likely conflicts with the applicable state mandate.
If the diagnosis exclusion list applies only to mental-health conditions while comparably treatable medical conditions remain covered, parity rules prohibiting more-restrictive limitations on MH/SUD benefits warrant scrutiny, and the practice can escalate via a parity complaint to the state insurance commissioner, DOL, or HHS using APA's template letters.
If the denial reflects a coding or adjudication issue rather than a true exclusion, the clinical record establishing the accurate, specific primary diagnosis supports reprocessing — pair the appeal with a corrected claim where appropriate.

Public sources you can cite

Every argument traces to a verified public source — no invented citations.

Sample appeal letter body

Replace the {{placeholders}} with your own information before sending.

We are appealing the denial of behavioral-health services for {{patient_reference}}, denied under CARC 167 (diagnosis not covered). The denied services — {{service_description}} — were rendered for {{diagnosis_code_and_label}}, a clinically documented mental-health condition. Mental-health and substance-use-disorder services are one of the ten essential health benefit categories that ACA-compliant individual and small-group plans must cover, including behavioral-health treatment such as psychotherapy and counseling, and applicable parity rules prohibit limitations on mental-health benefits that are more restrictive than those applied to medical and surgical benefits. We therefore request that the plan identify the specific plan provision, exclusion language, and written coverage policy under which this diagnosis was deemed non-covered, consistent with the disclosure obligations the Mental Health Parity and Addiction Equity Act places on group health plans and issuers, and explain how any diagnosis-level exclusion applied only to mental-health conditions complies with parity obligations and with {{state}} mandated-benefit laws. If this denial instead reflects a coding or adjudication issue, the enclosed clinical records confirm {{diagnosis_code_and_label}} as the accurate primary diagnosis, and we request reprocessing of the claim on that basis.

You'll need to supply: patient_reference (member ID / claim # — fill locally), service_description (e.g., psychotherapy CPT 90834, family therapy 90847, with dates of service), diagnosis_code_and_label (billed ICD-10 code and name, e.g., F41.1 generalized anxiety disorder), state (the plan's state — anchors the mandated-benefit reference, e.g., state autism mandate)

What this argument cannot ground

Honest gaps — no fabricated sources.

Often a genuine contractual exclusion: MHPAEA does not require a plan to cover any particular condition, and a clearly documented diagnosis exclusion (especially in self-funded ERISA plans) may not be appealable on parity grounds — pull the plan document or SBC before drafting.
Z/V-code-only claims (e.g., Z63.0 relationship distress billed for couples counseling) are routinely excluded as 'not a treatable mental disorder.' Appeal only if a covered clinical diagnosis was actually documented at the time of service; never alter a diagnosis to obtain payment.
Many 167 denials are coding artifacts — nonspecific or truncated ICD-10, wrong diagnosis pointer or primary/secondary ordering. Check the claim first; a corrected claim is often faster than an appeal and can be filed alongside one.
Scope limits: the essential-health-benefit argument applies to ACA-compliant individual and small-group plans, not large-group or self-funded coverage; state mandates (including autism mandates) generally do not reach self-funded ERISA plans.
When posted with group code CO, the adjustment is provider liability under the payer contract — the balance typically cannot be billed to the patient while the denial stands.

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