Why does counseling cost so much?

Based only on what clients usually observe in their counseling experience, the cost for counseling might seem quite high. Clients will usually enter a modest and simply furnished office and engage in a dialogue with the counselor for 45 to 50 minutes. Then they pay the counselor their fee for the session, which commonly exceeds $100 these days. It would be easy to conclude from this experience that the therapist must be getting rich from such a deal; however very few therapists are getting wealthy from their counseling practice. So where does all that money go?

A large portion of the session’s fee go to “hidden expenses” that are necessary to create the opportunity for that 50 minutes in the office. Understandably, clients generally think of their counseling as being a “helping relationship”. And of course, that is the primary purpose of counseling. The vast majority of therapists have chosen this profession out of a fundamental desire to be of help to others. But in order to make that help available, the counselor in private practice must also be a business person, just like the person who is a home builder, or has a landscape business, or owns a restaurant.

In keeping with the spirit of full disclosure, I believe it is important that clients have information available to better understand why their counseling costs what it does. Therefore, I have prepared the following article to explain some of the typical expenses associated with a private counseling practice. Of course, every practice is different and may not have these exact costs or may have different amounts. But, most counseling practices must address these issues and they are factors that contribute to your counseling fee.

[The following information does not represent any specific counseling practice; however all items are common expenses encountered by a private practice in counseling, social work, or psychology. For the ease of creating examples in this article, a counseling session fee of $100 is used and numbers are rounded to the nearest dollar. ]

Costs and Expenses in a Counseling Practice

The “50 Minute” Hour

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The “50 minute hour” was initially implemented to allow the counselor 10 minutes to write up the notes of the session, get materials for the next session, and perhaps even grab a cup of coffee. In days past, 10 minutes was generally adequate to cover the needs related to a single session. However, compliance with increased regulations, more complex documentation requirements, authorizations for treatment, collaboration with other professionals, and other recent requirements have resulted in 10 minutes being insufficient to complete all the obligations associated with any given session. It is common for a counselor to spend 1 1/4 hours of their time for a 50 minute counseling session and the requirements specifically related to that session. That does not include time spent on other “business aspects”, which are covered in the “Administrative Costs” section. So in “real money” terms, a $100 session fee usually translates to a hourly rate of about $80/hr for the time the counselor spends related to any particular session.

Professional Status

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When you meet with a counselor, social worker, or psychologist you are meeting with a licensed professional. Long gone are the days when any person could hang out a shingle and present himself as a counselor. Since the 1990’s all states have been raising the bar on what is required to practice as a counselor or psychotherapist. Overall this is a good thing for clients, because it provides assurance that they are working with someone who has met a minimum level of competence. But, it also means a person interested in becoming a counselor must make a significant investment in time and expense before meeting those requirements. The common requirements to become licensed to do psychotherapy includes earning at least a master’s degree, followed by a minimum of 2000 hours supervised practice over at least 2 years time. In many cases this supervision is paid for by the counselor-to-be, generally at a rate exceeding $100/hr. All together, by the time counselors are eligible to offer their services in private practice they have committed at least 8 years to preparation; including 6 years of college and 2 years of post graduate supervised work.

Ongoing Education and Training

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One might think after 8 years of preparation that a counselor’s education and the associated expenses would be over, but that is not the case. All counselors must renew their license on a regular basis. To be eligible for renewal they must attend a minimum amount of approved training each year. For instance, in North Carolina a Licensed Clinical Social Worker (LCSW) must attend at least 20 hours of continuing education each year. The cost of these trainings varies, but typically a LCSW will spend at least $500 each year for continuing education. And of course, time spent at training is time not seeing clients, so their potential earnings are also reduced. Many counselors also choose to specialize and seek out additional advanced training in the areas of their interest, resulting in additional costs to them.

Office Space and Utilities

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This is an obvious and fairly straight forward expense. In order to meet with clients the counselor must have a suitable office, furnishings, and pay for electricity, heat, and water. Office expenses can vary widely depending on several factors, many that are common to any real estate rental or purchase. The local market, convenience of the location, having a lobby or waiting area, and any added comforts all increase this expense. In our local area (Asheville, NC) the minimum cost for renting an office with a waiting area is about $4000 yearly. Even counselors in part time practice who rent office space for “per session work” will typically pay at least $10 from each session for the use of an office. In counseling the old adage “don’t judge a book by its cover” often holds true; for a counselor in a modest office space may be trying to help hold the clients’ fees down.

Business Equipment and Office Supplies

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Like any other business, a counseling practice needs basic office equipment and supplies. At the very minimum counselors need a computer, printer, copier, locking filing cabinets, and a phone. They also use up the common consumable office supplies (paper, pens, folders, envelops, stamps, etc.) One unseen expense is software specific to counseling practices, especially related to assessments, accounting, billing, and documentation, each of which may cost several hundreds of dollars. Counselors who use computers for any part of client records are required to secure that information by using encryption programs. Depending on the size of a practice, office expenses run from several hundreds to thousands of dollars annually.

Licenses, Fees, and Insurance

Learn More Like any business, counseling practices must pay common business fees, but will also additional expenses specifically related to their professional status. In order to “conduct business” they pay fees to obtain “privilege licenses” from the state and sometimes the city. They must pay a fee each time they renew their professional license. Most professionals also belong to at least one professional association, with annual dues. Each of these fees are usually modest by themselves, but combined they will typically add up to a $400 – $1000 dollars each year. Increasingly, counselors are likely to require guidance from attorneys, accountants, or billing specialists and have the expense of their hourly fees. Another significant expense is malpractice and liability insurance, which any professional in private practice should carry. Such insurance is not only important for the counselor, but it also provides assurance they will be able to remain available to serve their clients in the case of a false claim. Again, the costs for this insurance varies by location and professional discipline, but usually is in the range of $500 – $1000 or more annually.

Administrative Expenses

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A successful counseling practice must commit a significant amount of time to the “administrative functions” that are necessary to conduct the business, but have no direct bearing on the counseling itself. Of course, these include basic office functions such as managing appointments, keeping books, generating invoices, and so forth. If a counselor offers clients the convenience of using credit or debit cards for payment, between 2% – 5% of the fee will go to the bank providing that service. Perhaps the most significant cost in this area is the increasingly complex overlay of legal, regulatory, and eligibility requirements brought on by governmental and insurance rules and guidelines. In order to meet these demands a counselor has the choice of handling administrative functions himself or hiring others to do them for the practice. Either option results in additional “expense” to the practice, which in turn affects client fees. A counselor who manages the administrative work himself has less time to meet with clients. If instead, he hires office staff or contracts professionals he is available to see more clients and create more income, but a portion of each session’s fee must then go to pay the added staff.

Self Employment Tax

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Anyone who is self-employed in any manner already knows all about self employment tax. Everyone who earns income pays this social security tax, but employees have half of it paid by their employer. A counselor in private practice is a self employed person who pays their half like any employee; but since they are “their own employer” they also pay the other half. Currently, the rate of this tax is 15.3%. So, the counselor in private practice pays 15.3% tax on any “profit” they have earned from their fees (after business expenses.) For example, if a counselor spends $35 of each $100 session to cover business expenses, she would have $65 remaining. But, she will pay 15% tax ($10) of that in self employment tax, leaving $55 as actual income. This tax is before her personal income tax, which is then paid on the $55.

Advertising and Marketing Expenses

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Advertising or marketing might not seem like an essential expense for a counseling practice, but it actually is necessary component for nearly any private practice to be successful. Without some means of promotion, potential clients simply wouldn’t know of a counselor’s availability. This marketing can take many forms (traditional media ads, newsletters, public presentations, networking with referral sources, etc.); but any of these options will cost the counselor time and/or money – and usually both. Most counselors would love to avoid the need for marketing and just meet with their clients, but without actively “advertising” most practices simply would not have enough clients to survive.

Hidden Time: an Example

As noted previously, counselors will usually spend about 75 minutes of time related to the 50 minute session. However, counselors may spend significant amounts of time assisting their clients outside of the sessions, especially regarding issues associated with insurance. Here’s a very common example of a counselor assisting his client with insurance reimbursement and how it influences what he actually “earns” from the counseling fees.

Counselor Sammy receives $100 per counseling session. He has an average sized practice, but his “business expenses” are fixed costs – that is, he has to pay them regardless of how many clients he sees. So, expenses take 40% of each hourly fee, leaving him $60 per session after paying the bills. He pays his self employment tax, which is $9.20 per session.

So for each session Sammy has earned a little over $50 an hour, right? Well, not quite. Remember, he will use about 1 1/4 hours of his time for each of those sessions, making his earning rate is closer to $40 an hour. At least when everything goes smoothly…

Sammy meets with client Sally and they resolve her issues in 12 sessions. Sally has paid $1200 in fees and Sammy has $610 after paying $590 in business expenses and tax. He spent 15 hours between the sessions and doing the associated documentation, so he’s earned the average $40 per hour.

That is, until Sally’s insurance company denies her claim. Sally calls and talks with Sammy about why the insurance didn’t pay. Sammy calls the insurance company, negotiates the voice menus, sits on hold, and finally talks with a representative who informs him they determined Sally’s treatment was not “medically necessary”.

Sammy calls Sally back to explain this and she decides to appeal the decision. As part of the appeal process Sammy talks with the insurance company’s clinical staff and argues for Sally’s claim being valid, but it is again denied. Sally appeals to the next level and Sammy spends an hour completing his section of the appeals form.

Finally, after 3 months Sally wins her appeal and is reimbursed. Sammy is pleased for her, but he still has only earned the original $610, despite him spending an additional 3 hours of time related to the original 12 sessions. So Sammy actually spent 18 hours on the 12 counseling sessions, resulting in $33.80 an hour in real income.

This is a fairly common scenario and used to demonstrate the hidden time often encountered by counselors in the service of their clients; and also the type of “real income” counselors earn from their work. Of course, there are many clients who don’t require any additional time beyond the sessions and the related documentation. On the other hand, many counselors accept managed care rates or reduce their fees to match a client’s managed care option. In that case, the counselor will receive much less than $100 per session, usually in the $50 – $75 range. Since their fixed business expenses stay the same, it simply means the counselor earns that much less per hour.

Summary

Hopefully this information provides some insight into the unseen expenses a counselor must address in order to provide counseling services to clients and also helped to explain why counseling costs what it does. Most counselors entered this profession from their desire to be of assistance to others, not become wealthy from their profession. And most counselors don’t become wealthy, at least not unless they develop other professional services beyond meeting with clients. As shown by the information in this article, counselors typically earn between $30 – $60 an hour in real income from their session work with clients. And most counselors are not naturally inclined toward business, or they likely would have entered another line of work. But, counseling in private practice does requires a solid business foundation in order to provide a safe, reliable, and professional service to the clients. And a large portion of each sessions fee goes to build and maintain that foundation.