The June 2026 issue of Greenberg Traurig’s quarterly Behavioral Health Law Ledger covers two significant developments in behavioral health law and policy: Colorado’s new law restricting the use of artificial intelligence in psychotherapy, and an update on how California’s Proposition 1 behavioral health reform measure may be affecting the availability of community-based behavioral health services across the state.
Colorado Restricts Use of AI in Psychotherapy
By Julie Sullivan
Effective June 3, 2026, Colorado enacted House Bill 26 1195, establishing clear limits on the use of artificial intelligence in behavioral health care. Colorado joins several other states, including Illinois, Nevada, Tennessee, and Utah, in legislating to restrict AI chatbots from acting as – or being misrepresented as – licensed behavioral health professionals, and in requiring disclosure to patients of when and how AI is being used in their behavioral healthcare. Like those other states’ laws, the new Colorado law addresses both the unlicensed AI therapist issue and patient disclosure obligations. It is designed to ensure that licensed clinicians – not AI tools – deliver psychotherapy, while permitting limited use of AI for operational support. The new law’s key provisions are summarized below.
1. Psychotherapy Must Be Delivered by Licensed Professionals
AI may not independently provide psychotherapy, counseling, diagnosis, or treatment. All clinical services must be delivered by a licensed provider.
2. AI Cannot Perform Clinical Functions Without Oversight
- AI may not engage in therapeutic communications with patients on a standalone basis.
- Any AI-generated recommendations (e.g., treatment plans) must be reviewed and approved by a licensed professional before use.
- Providers retain full responsibility for all patient care involving AI.
3. AI Is Limited to Administrative or Support Roles
Permissible uses include documentation, transcription, scheduling, and similar support functions, provided the licensed clinician oversees and validates outputs.
4. Disclosure and Informed Consent Required
- Providers must inform patients when AI is used in connection with their care.
- Use of AI for recording or transcription requires advance disclosure of purpose and informed consent.
5. Marketing and Consumer Protection Restrictions
- AI tools may not be marketed as equivalent to licensed therapists.
- AI may not be represented as providing psychotherapy services absent licensure.
- Providers and developers may not imply that AI communications are protected by professional confidentiality standards (e.g., HIPAA) where doing so would be misleading.
6. Enforcement
Violations may result in professional discipline by Colorado licensing boards, underscoring that compliance responsibility rests with the provider.
7. Considerations for Behavioral Health Providers
In light of this new law and its associated enforcement risks, behavioral health care providers may wish to consider:
- Taking inventory of AI tools and related policies to confirm they align with the law’s restrictions, including, for example, prohibiting AI from independent clinical decision-making or independent patient interaction.
- Ensuring that any AI-generated clinical content (e.g., AI scribe outputs) is reviewed and approved by a licensed clinician.
- Ensuring that patient consent forms disclose AI use, and that AI recording or transcription is not used without written informed consent from the patient.
- Confirming with AI vendors that they are operating or are capable of operating and restricting AI involvement where necessary in compliance with this law.
- Training all staff on safe and compliant AI use in the patient care setting, including on the potential privacy law implications of sharing patient-identifying information with an AI tool that is not operating in a contained, closed-loop environment exclusively controlled by and accessible to the provider.
Proposition 1 – California’s Behavioral Health Reform Measure May Be Contributing to Clinic Closures
By Deborah Rotenberg
California’s Proposition 1 was a two-bill legislative package passed by voters in March 2024, aimed at modernizing the state’s behavioral health care system. The package included a $6.4 billion bond measure and created new programs intended to substantially expand housing for people with behavioral health care needs.
Proposition 1 also reallocated how existing state funds for mental health services may be spent. Specifically, the reallocation reduced the share of locally allocated state funds available for intervention, prevention, and outpatient services, directing more funding instead toward housing subsidies. A March 2026 report suggests that this reallocation may lead to at least three clinic closures in the state in 2026 – including, in one instance, the closure of a county’s only tribally specific peer support program. San Diego County, one of the largest counties in California, has announced plans to close 29 behavioral health programs as a result of Proposition 1’s funding changes.
The state funding reallocation component of Proposition 1 was among the measure’s most controversial provisions. Supporters of the funding shift argued that under the prior system, counties had too much discretion over how to spend on housing, leading to widely disparate outcomes across the state – with some counties investing and others spending very little. Opponents criticized the requirement as a one-size-fits-all mandate that cannot adequately account for the differing needs among California’s diverse counties.
Whether the state’s overhaul of its behavioral health financing infrastructure and its investment in housing for people with behavioral health needs will achieve its intended outcomes remains to be seen.