An ambitious attempt to bring public mental health care to Fairfax County residents is drowning in red ink because private insurance companies are ignoring Virginia law and refusing to pay many claims.

The county's three mental health centers, which spend more than $8 million annually serving about 7,000 people, are recovering only 4.8 percent of their expenses from insurance firms, which are stubbornly refusing to pay benefits despite what officials say are court rulings to the contrary.

"It's plain defiance," says former Fairfax legislator Kenneth R. Plum, who in the late 1970s led the successful drive for state laws mandating minimum insurance payments for mental health care delivered on an out-patient basis.

"There is ample evidence to indicate the insurance companies are not complying with the law," Plum said. "It's an arrogance I have never seen in all my years of experience."

Officials at the county-run facilities, already undergoing sharp cutbacks because of the financial troubles, say they had estimated that private insurance plans in the Washington area, which are among the most liberal in the nation in terms of mental health benefits, would pick up at least 15 percent of their annual costs.

But it hasn't happened that way and the Fairfax officials place part of the blame on the doctor-dominated insurance industry, which they say is unwilling to concede that public agencies have any business providing mental health care. tAs Shirley Costello, director of Fairfax's Mount Vernon Center, puts it: a"They [insurance companies] are suspicious of us and think we are trying to smuggle in social welfare costs."

Much of the dispute between the insurance industry and the county does indeed center on just what costs the public programs can bill to insurance firms, but county officials charge that the industry is fighting many of their claims, resisting others that state law says must be paid and challenging ones that aren't specifically covered by the statutes.

The industry, says one senior insurance executive, will pay for "mental problems" but promises to fight unstintingly against paying for treatment of "social problems ."

"I'm angry about it," said Emilie Miller, former chairman of the Fairfax-Falls Church Community Services Board, a local agency that oversees the three Fairfax centers.

One high Virginia official, who asked to be unnamed, acknowledges Fairfax's mental health centers "have a serious problem," but says county officials like Miller have erred in failing to confront the insurance industry head-on.

Directors of the three mental health centers, in writing and verbally, have urged their supervisors repeatedly to take legal action against the insurance companies or at least urge the state to do so. The services board has declined to act, preferring instead to seek more financial help from the state. d

Virginia mental health officials also have been less than eager to confront the industry. State Insurance Commissioner James W. Newman says he hasn't acted because the issue hasn't been brought to his attention.

According to records at the Fairfax centers, insurance companies often ignore Virginia law, interpret it to suit their purposes and employ delaying tactics that can consume up to six months before making payments. For example, the county's Northwest Center this year submitted claims to Blue Cross/Blue Shield of Washington for services provided by licensed psychiatric social workers who make up about 40 percent of the center's therapists. The social workers, as required by Virginia law, were supervised by a physician and therefore, under the state law, claims for their work should have been honored.

But Blue Cross refused, saying: "Benefits are not available for psychotherapy rendered by licensed certified social workers. This exclusion applies even though the patient may have been referred to the social worker by a psychiatrist or a licensed psychologist."

Raymond D. Freson, a spokesman for Blue Cross of Washington, insists that the insurer, one of the largest in the area, does "routinely comply" with Virginia statutes. "But that's [reimbursement for psychiatric social workers and similar non-medical therapists] a gray area. There's potential for conflict."

In another case, the Northwest center submitted a claim to CHAMPUS, a large federal insurance program that covers military personnel and their dependents, for a licensed psychiatric nurse, whose service was also supervised by a physician, as required by Virginia law. But CHAMPUS, which has one of the best records for reimbursing, also balked, saying the nurse was an "unauthorized provider."

"We would reimburse if she [the nurse] had a master's degree in behavioral science," said CHAMPUS supervisor Pamela Shorter of Roanoke.

In another case, the Northwest center submitted a claim to Blue Cross/Blue Shield of Virginia, another major insurer in the area, for services by a licensed psychologist. The claim was made in May 1980, but it was not until October that the company, reversing itself under pressure, agreed to pay.

The insurance companies defend their tough line on benefits, saying that if they honored all the claims filed by public mental health centers they would go broke or have to raise premiums to unrealistically high levels.

"Right now we've got our hands full covering medical and surgical problems," says Edwin P. Munson, general counsel of Blue Cross/Blue Shield of Virginia. "We can't take on social problems.

"When someone is going through a bad emotional problem, let's say a marital crisis, we are not going to cover them. We are going to cover mental problems."

The dilemma facing the Fairfax centers is not the first such fight in Virginia. For seven years, Blue Cross of Virginia fought a state law that says patients cared for by licensed psychologists are as eligible for mental health care benefits as are the patients of physicians. The psychologists won decisions in the Virginia Supreme Court and 4th U.S. Circuit Court of Appeals this summer, and Blue Cross of Virginia said it will now recognize the therapists' claims for reimbursement.

But general counsel Munson said he doubted the company would modify its tough stand against extending benefits to other non-medical therapists at mental health centers, even if they are supervised by a physician or phychologist. Yet the Virginia law, which has been upheld in the courts, says insurance companies must recognize services provided by non-medical therapists under the supervision of a physician or psychologist.

Especially irritating to the Fairfax mental health officials is that hospitals and psychiatric institutes, which are generally controlled by doctors, have little problem getting reimbursement for their mental health services. But community health centers, where psychologists and other non-medical therapists outnumber psychiatrists and other medical doctors, often are challenged by insurance companies when they claim benefits.

The Fairfax program is falling well behind the national average of community health centers in securing insurance payments, Virginia officials say. The national reimbursement average is 65 percent higher than in Fairfax, and Hoover B. Lide, a Virginia insurance official, says there is no reason the county's centers should not recover at least 25 percent of their expenses through insurance benefits -- "at a minimum."

Miller, the former head of the Fairfax services board, says the current impasse may give the insurance industry more trouble than it wants. "If the insurance companies are going to be so rigid, the people who have policies and still wind up paying the bills are going to demand national health insurance."