This case doesn’t seem to question whether gender dysphoria can be diagnosed accurately, or whether a mastectomy is suitable treatment, maybe because that isn’t the insurance company’s responsibility?
Yes, this is the US "healthcare system" in all its glory.
This is an argument about who pays - if a "doctor" says that a girl "needs" this treatment, is a medical insurer required to pay for it?
This the government (or part of the government) saying "yes". And it's no skin off their nose - it doesn't cost the government anything, and it doesn't really cost the insurers anything. Insurers probably don't care much either way as long as the rules are consistent so they can't be undercut by competitors. They'll just add it to premiums, making general health insurance a little more unaffordable than it already is.
it implies that dysphoria has a causal effect on your physical development
Weird to see postmodernism in a medical context. In their lingo it's "abnormal" because of one's view of it. So a viewpoint (in this case of the individual, but it could be of society) "causes" the "abnormality", despite no actual change to physical reality.
There's a grain of sense in there, in as much as "who defines what's abnormal?", but usually those arguments are used pushing back on unnecessary medical intervention (such as on DSD infants). This is doing the opposite - embracing a view that I thought all these queer folks were against. Surely viewing certain body formations as "normal" or "abnormal" was what they opposed?
(I know, I shouldn't try so hard to look for consistency - it's a toolkit, and they'll deconstruct in whatever way's convenient in any case).