Legal landscape
The U.S. regulates controlled substances through the Controlled Substances Act (CSA) and the Food and Drug Administration (FDA). The CSA allocates drugs in five schedules based on their medical use, potential for abuse, and safety and risk of dependence. Schedule I drugs include heroin, cannabis, psilocybin and MDMA. According to the CSA, these drugs have no currently accepted medical use and a high potential for abuse.
Any drug listed on Schedules II through V is eligible for FDA approval. The FDA reviews clinical trials and peer-reviewed studies to determine the safety and efficacy of a substance for a particular purpose. Once approved by the FDA, the drug may be manufactured and distributed in interstate commerce. Although FDA approval is limited to particular dosages, forms and/or indications, providers may still prescribe FDA-approved drugs “off-label” in a manner that has not been approved by the FDA.
Schedule I substances face many hurdles to accepted use in treatment, including research and funding restrictions and limitations on substance access and supply. Consequently, Schedule I drugs tend to stay on Schedule I indefinitely.
Three approaches to reform
Cannabis, psilocybin and MDMA have been Schedule I drugs for decades. That could be changing as soon as this year through three different approaches to reform.
Cannabis has followed a state-led path to legalization. Beginning in the late 1990s, through voter-led ballot initiatives and legislation, states began passing laws permitting the use of cannabis for specified medical purposes, despite federal prohibitions. By the early 2010s, the federal government clarified through the Cole Memorandum and the Rohrbacher-Farr amendment that it would not enforce or fund enforcement against state-sanctioned cannabis activities. In 2024, at the recommendation of the Department of Health and Human Services, the Department of Justice (DOJ) proposed a new rule that would reschedule cannabis as a Schedule III drug under the CSA, which would recognize its potential for currently accepted medical uses in treatment and provide a pathway for eventual FDA approval.
Ketamine has relied on innovation in the private sector. The drug is currently FDA approved for anesthetic uses. However, over the last 25 years, physicians began prescribing ketamine for off-label uses, including to treat depression, anxiety and post-traumatic stress disorder (PTSD). Now, physician-owned ketamine clinics are prevalent across several states. While ketamine clinics have treated thousands of patients, the path to more widespread acceptance through FDA approval remains unclear.
A third path was pursued for psychedelics: direct appeals to the federal government. The FDA recently rejected an application to use MDMA to treat PTSD but left open the possibility of future approval. Separately, the 2024 Defense Authorization Act authorized research on the effects of psilocybin, MDMA and other psychedelic therapies on veterans suffering from PTSD. The U.S. spends about $230 billion annually on PTSD treatments; these studies may show that psychedelics are a safe and more cost-effective alternative to current treatments.
Coverage considerations
Coverage for drugs involves several considerations. First, plans generally require that the drug is medically necessary. Second, most plans only cover drugs approved by the FDA. Third, most plans maintain drug lists that identify drugs covered by the plan; drugs not on the plan’s drug list require prior authorization. Fourth, some plans expressly exclude specific drugs like cannabis. Generally, plans face little risk refusing to cover Schedule I drugs; they are not medically necessary under the CSA, they are not approved by the FDA, and they are not on the plan’s drug list.
Still, advocates are already seeking insurance coverage for medical cannabis. Several states have compelled worker’s compensation insurers to cover an injured worker’s medical cannabis when authorized under state law, despite federal prohibitions. If the DOJ proceeds with rescheduling cannabis as a Schedule III drug, requests for coverage will continue to grow. Clinical research and legal developments with psychedelics may bring similar coverage requests in the future.
We recommend that managed care companies monitor these emerging therapies to understand the landscape, determine their coverage obligations and consider what they might cover in the future.