Claims Administrators Can Be Sued under ERISA on Mental Health Parity Claims | Practical Law

Claims Administrators Can Be Sued under ERISA on Mental Health Parity Claims | Practical Law

In N.Y. State Psychiatric Ass'n, Inc. v. UnitedHealth Grp., the US Court of Appeals for the Second Circuit held that a psychiatric association has standing to sue under the Employee Retirement Income Security Act of 1974 (ERISA) for a claim involving the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA). The court also allowed an MHPAEA claim (under ERISA) against a plan's claims administrator to move forward.

Claims Administrators Can Be Sued under ERISA on Mental Health Parity Claims

Practical Law Legal Update 7-618-3453 (Approx. 6 pages)

Claims Administrators Can Be Sued under ERISA on Mental Health Parity Claims

by Practical Law Employee Benefits & Executive Compensation
Published on 25 Aug 2015 • USA (National/Federal)
In N.Y. State Psychiatric Ass'n, Inc. v. UnitedHealth Grp., the US Court of Appeals for the Second Circuit held that a psychiatric association has standing to sue under the Employee Retirement Income Security Act of 1974 (ERISA) for a claim involving the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA). The court also allowed an MHPAEA claim (under ERISA) against a plan's claims administrator to move forward.
On August 20, 2015, the US Court of Appeals for the Second Circuit held that a professional psychiatric association has standing to sue under the Employee Retirement Income Security Act of 1974 (ERISA) for a claim involving the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) (N.Y. Psychiatric Ass'n, Inc. v. UnitedHealth Grp., , at *1 (2d Cir. Aug. 20, 2015)). The court also allowed an MHPAEA claim brought by a plan participant against the plan's claims administrator to proceed.
The MHPAEA requires parity between medical/surgical benefits and mental health or substance use disorder benefits regarding financial requirements and treatment limitations under:
  • Group health plans.
  • Health insurance coverage offered in connection with a group health plan.
For analysis of the MHPAEA, see Practice Note, Mental Health Parity: Overview.

Background

A plan participant who suffered from various mental health disorders submitted benefits claims to the plan's third party claims administrator for his weekly (and later, semiweekly) outpatient psychotherapy sessions with an out-of-network psychologist. Although the claims administrator initially approved the participant's claims, it also conducted a concurrent medical necessity review while the participant was undergoing treatment to decide whether benefits for the treatment should be continued. As a result of that review, the claims administrator determined that the participant's treatment was not medically necessary and would no longer be covered, and upheld this decision on internal appeal (see Practice Note, Internal Claims and Appeals Under the ACA). The claims administrator's decisions were final and binding, and no further appeals of the decision were permitted, though an optional external review procedure existed (see Practice Note, External Review Under the ACA).
The claims administrator was later sued by various parties, including the participant and a professional psychiatric association that treated the participant, for violations of ERISA and the MHPAEA, among other laws. The plaintiffs claimed that the claims administrator violated the MHPAEA by treating claims submitted for routine, out-of-network medical claims more favorably than those for routine, out-of-network mental health claims. Specifically, the participant argued that the claims administrator:
  • Subjected mental health claims, but not medical claims, to preauthorization requirements and concurrent review.
  • Applied a more restrictive standard of review when determining the medical necessity of his mental health claims than:
    • generally accepted mental health standards; and
    • the standards the claims administrator applied to medical claims under the plan.
The district court dismissed the complaint in its entirety, holding that:
  • The psychiatric association lacked associational standing to sue on behalf of its members.
  • The claims administrator could not be sued under ERISA Section 502(a)(1)(B) (that is, a claim for benefits) in its capacity as a claims administrator (29 U.S.C. § 1132(a)(1)(B)).
  • Relief under ERISA Section 502(a)(3) (29 U.S.C. § 1132(a)(3)) was not appropriate because adequate relief was available under Section 502(a)(1)(B).
The plaintiffs appealed.

Outcome

On appeal, the Second Circuit affirmed in part and vacated in part and remanded.

Psychiatric Association Had Associational Standing

The Second Circuit first addressed whether the psychiatric association had standing to sue the plan's claims administrator. In general, an association has standing to sue on behalf of its members when certain conditions are met and the injury giving rise to the claims for injunctive relief would not require individualized proof. The issue on appeal was whether, at the motion to dismiss stage, the psychiatric association had plausibly alleged that its claims did not require individualized proof. The court held that the psychiatric association had sufficiently alleged that its claims did not require individualized proof, but noted that if the claims ultimately required significant individual participation or proof the district court could dismiss the psychiatric association for lack of standing.

Claims Administrators Could Be Sued under ERISA for MHPAEA Claims

The Second Circuit rejected the claims administrator's argument that it could not be sued under an ERISA Section 502(a)(1)(B) claim for benefits in its capacity as a claims administrator. The court held that if a claims administrator has "sole and absolute discretion" to make final, binding benefits denials, it exercises total control over claims for benefits and is therefore a proper defendant for Section 502(a)(1)(B) purposes (see generally Standard Clause, SPD Language, Firestone Plan Interpretation). As a result, the claims administrator in this case was an appropriate defendant. The court noted that its conclusion is consistent with recent decisions on this issue from other circuit courts of appeals (see, for example Legal Update, Insurers Can Be Sued for Benefits under ERISA: Seventh Circuit).

An ERISA Section 502(a)(3) Cause of Action Also Was Available

The court also rejected the claims administrator's argument that it could not be liable for "other appropriate equitable relief" under ERISA Section 502(a)(3) for MHPAEA violations. Citing a Supreme Court decision, the court concluded that:
The court also declined to dismiss the Section 502(a)(3) claim on the ground that adequate relief is available under Section 502(a)(1)(B). Importantly, the court noted a distinction between a cause of action and a remedy under Section 502(a)(3). Although available remedies ultimately might be limited (for example, if relief was also available under Section 502(a)(1)(B)), the court could not determine at this early procedural stage whether the Section 502(a)(3) cause of action itself must be foreclosed. For example, the court observed that:
  • The participant had not yet succeeded on the Section 502(a)(1)(B) claim.
  • It was not yet clear whether monetary benefits under Section 502(a)(1)(B) alone would provide the participant a sufficient remedy.
If the participant ultimately succeeded on both his Sections 502(a)(1)(B) and 502(a)(3) claims, the district court could then determine whether equitable relief under Section 502(a)(3) is appropriate.
The court also held that if the participant sought redress for the claims administrator's past breaches of fiduciary duty (or to enjoin it from committing future breaches), this relief would count as equitable relief under Section 502(a)(3) (see Expert Q&A on the Impact of CIGNA Corp. v. Amara and Legal Update, Expanded ERISA Remedies Available in Fiduciary Breach Claims: Seventh Circuit). This relief could include an injunction coupled with "surcharge" (that is, monetary compensation for a loss resulting from a fiduciary's breach of duty). The Second Circuit left the determination of appropriate remedies with the district court, though it indicated that the participant appeared to request:
  • Monetary compensation resulting from the claims administrator's violations of the MHPAEA and ERISA.
  • Declaratory and injunctive relief prohibiting the claims administrator from violating the MHPAEA and ERISA in the future.

Practical Impact

Although the Second Circuit's remedies analysis is the kind of discussion that only an ERISA litigator could love, the decision should cause claims administrators to take stock of whether they are handling claims in compliance with the complicated requirements of the MHPAEA and its implementing regulations (see Practice Note, Mental Health Parity: Overview). In a footnote, however, the Second Circuit expressly declined to decide whether a claims administrator that exercises less than total control over the claim denial process is a proper defendant under a Section 502(a)(1)(B) claim for benefits.
Moreover, this case would appear to expand the pool of potential MHPAEA plaintiffs in the Second Circuit to include psychiatric associations, giving additional strength to the MHPAEA.