Insurer Liability under the ACA's Internal Claims and Appeals Rules | Practical Law

Insurer Liability under the ACA's Internal Claims and Appeals Rules | Practical Law

In New York State Psychiatric Association v. UnitedHealth Group, the US District Court for the Southern District of New York concluded that insurers acting as claims administrators for self-funded ERISA health plans were not proper party defendants in an ERISA action involving compliance with the Affordable Care Act's (ACA's) expanded internal claims and appeals rules and the Mental Health Parity and Addiction Equity Act (MHPAEA).

Insurer Liability under the ACA's Internal Claims and Appeals Rules

Practical Law Legal Update 0-551-6885 (Approx. 4 pages)

Insurer Liability under the ACA's Internal Claims and Appeals Rules

by Practical Law Employee Benefits & Executive Compensation
Published on 16 Dec 2013 • USA (National/Federal)
In New York State Psychiatric Association v. UnitedHealth Group, the US District Court for the Southern District of New York concluded that insurers acting as claims administrators for self-funded ERISA health plans were not proper party defendants in an ERISA action involving compliance with the Affordable Care Act's (ACA's) expanded internal claims and appeals rules and the Mental Health Parity and Addiction Equity Act (MHPAEA).
In New York State Psychiatric Association v. UnitedHealth Group, the US District Court for the Southern District of New York addressed claims involving the Affordable Care Act's (ACA's) internal claims and appeals rules (No. 13 Civ. 1599 CM, (S.D.N.Y. Oct. 31, 2013) (see Practice Note, Internal Claims and Appeals under the ACA). The plan participants sued the insurers, in their role as claims administrators of employer-sponsored, self-insured health plans, asserting violations of ERISA, the Mental Health Parity and Equity Addiction Act (MHPAEA) and the ACA, among other laws. Collectively, the participants' claims challenged plan benefits denials by the insurers involving mental health benefits for the participants or their beneficiaries. Specifically, the participants claimed that the insurers:
  • Applied different standards to reimbursement requests for the cost of mental health and substance abuse treatments than for medical or surgical treatments.
  • Did not permit the participants to appeal plan benefit denials and failed to follow adequate appeals procedures.
The participants sought an injunction requiring the insurers to treat mental health or substance abuse treatments no less favorably than medical and surgical benefits in assessing claims under the employers' plans. The insurers moved to dismiss.
The court rejected the participants' claim that the insurers' claims processing violated the MHPAEA, concluding that the insurers, as claims administrators, were not entities to which the MHPAEA applies. The court reasoned that:
  • The MHPAEA applies to group health plans and health insurance coverage offered in connection with such plans that provide both medical and surgical benefits and mental health or substance use disorder benefits.
  • Offering coverage in connection with a plan under the MHPAEA means selling insurance coverage to the plan or its employer/plan sponsor (as opposed to administering claims under the plan).
The insurers in this case did not sell coverage to the plans and therefore, according to the court, did not offer them coverage.
For similar reasons, the court also dismissed the participants' claims against the insurers under the ACA's expanded internal claims and appeals requirements, as interpreted in regulations from the DOL, HHS and IRS (see Practice Notes, Internal Claims and Appeals under the ACA and External Review under the ACA). The participants argued that the insurers violated claims-related protections under the ACA by failing to:
  • Use independent reviewers in appeals.
  • Provide continuing coverage pending the outcome of appeals.
The court concluded that:
  • These expanded internal claims and appeals rights, as with the MHPAEA rules, applied to group health plans and insurers providing health insurance coverage in connection with group health plans.
  • Insurers would need to sell coverage to plans to be considered entities providing health insurance coverage in connection with group health plan coverage.
As a result, the court:
  • Dismissed the participants' claims against the insurers under the expanded ACA internal claims and appeals rules.
  • Indicated that although the insurers in this case were fiduciaries, they could only be bound by an injunction under ERISA's enforcement scheme as agents of a principal that was itself liable under the ACA (for example, the participants' plans).
In reaching its conclusions, the court assumed that because the ACA changes at issue were incorporated into ERISA, it was fair to assume that:
  • The expanded appeals rights under the ACA, as with the MHPAEA requirements, become implicit terms incorporated into every ERISA plan.
  • Plan documents that failed to provide for appeal rights at least as favorable as required under the ACA were "deemed amended" to provide rights equivalent to the ACA standards.

Practical Impact: ACA Litigation and Whistleblower Claims

Although the DOL claims regulations (as they existed before the ACA) have been the subject of numerous reported cases, this decision is noteworthy as one of the first involving the ACA's expanded internal claims and appeals requirements. It is possible that other courts may disagree with this court's arguably narrow reading of which insurers are proper party defendants in an ERISA action under the expanded ACA claims requirements. Either way, these rules (and the related external review rules) will undoubtedly be the topic of future litigation (see Practice Note, External Review under the ACA).
Of course, litigation is not the only source of potential exposure for employers and others under the ACA. The ACA also includes protections for employees who report violations of Title I of the law, including:
Last week, the Occupational Safety and Health Administration (OSHA) announced the availability of an online form through which employees can electronically file whistleblower retaliation complaints under the ACA whistleblower rules, which are administered by OSHA. When using OSHA's online whistleblower complaint form, employees are prompted to provide basic information allowing OSHA to follow-up with them. Once completed online, the complaint form can also be downloaded and submitted in hard-copy.