Health Insurer Ordered to Reprocess 67,000 Claims, Follow Independent Claim Guidelines

Following last year’s ruling that an insurer breached its fiduciary duty to health plan participants by using overly restrictive claim guidelines in its administration of mental health and substance use disorder benefits (see our Checkpoint article), a federal court has granted extensive relief to a class of plan participants. In the prior ruling, the court found that the insurer followed claim guidelines that were inconsistent with generally accepted standards of behavioral health care and improperly influenced by a financial incentive to lower costs. For example, the insurer’s internal claim guidelines imposed mandatory reductions in the level of care (such as ceasing coverage for residential treatment in favor of outpatient treatment) even when generally accepted standards required a higher level of care. In addition, the insurer declined to adopt and follow standards of care required by certain state laws because of the potential financial impact. The court held that the insurer’s development of and adherence to unreasonable claim guidelines constituted both a breach of fiduciary duty and the arbitrary and capricious denial of benefits.

Stating that the class action lawsuit arose out of “pervasive and long-standing violations of ERISA” followed by “lie[s] to state regulators” and “attempts to mislead the court at trial,” the court has awarded the participants the remedies they sought. First, the insurer must, within one year, reprocess 67,000 claims it denied while using inappropriate criteria. In addition, during an injunction period of up to ten years, it must decide claims using independent guidelines developed by certain mental health and substance use treatment organizations instead of its own internal guidelines which have been used to “protect its bottom line.” Employees of the insurer must be trained in the appropriate medical necessity criteria, and a special master appointed by the court will oversee the implementation of the new standards.

EBIA Comment: This case should motivate sponsors of both insured and self-insured health plans to ensure that their plans—and their insurers and administrators—are adhering in form and in practice to generally accepted standards of behavioral health care and state and federal mental health parity requirements. For more information, see EBIA’s ERISA Compliance manual at Section XXVIII (“Fiduciary Duties Under ERISA”), EBIA’s Self-Insured Health Plans manual at Section XXIII (“Selecting, Engaging, and Monitoring Service Providers”), and EBIA’s Group Health Plan Mandates manual at Section IX (“Mental Health Parity”).

Contributing Editors: EBIA Staff.