Insurer’s Adherence to Overly Restrictive Behavioral Health Claim Guidelines Violated ERISA

A federal court has ruled that a large insurer breached its fiduciary duty to health plan participants by using overly restrictive claim guidelines that were inconsistent with generally accepted standards of behavioral health care and improperly influenced by a financial incentive to lower costs. In the class action lawsuit, participants alleged that they were improperly denied benefits for treatment of mental health and substance use disorders because the insurer’s claim guidelines did not comply with the terms of their insurance policies (which provided for coverage consistent with generally accepted standards of care). Other participants asserted that the insurer violated state laws requiring adherence to certain treatment standards for mental health conditions and substance use disorders. The participants brought claims under ERISA for breach of fiduciary duty (failing to administer the plans in the best interest of participants and in accordance with plan documents) and for arbitrary and capricious denial of benefits.

Following a detailed analysis of the claim guidelines, the court found that the insurer’s review criteria deviated from generally accepted standards of care by placing heavy emphasis on addressing acute symptoms and stabilizing crises such as suicidal episodes, while ignoring the effective treatment of underlying conditions. For example, the 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 court found that the insurer declined to adopt and follow standards of care required by certain state laws because of the potential financial impact on the insurer. For example, employees of the insurer testified that the insurer initially considered limiting coverage of transcranial magnetic stimulation (see our Checkpoint article) to the self-insured plans it administered, for which it was not responsible for paying benefits. Ultimately, the insurer covered the treatment under both types of plans, but with tight management of claim approvals to minimize cost. The court concluded that the insurer’s development of and adherence to unreasonable claim guidelines amounted to both a breach of fiduciary duty and an arbitrary and capricious denial of benefits.

EBIA Comment: Advocates for individuals with mental health or substance use disorders are hailing this decision as a victory, but the court has yet to consider the appropriate relief to be granted, and an appeal seems likely. In the meantime, sponsors of both insured and self-insured health plans may wish to consult with their insurers and administrators to determine that their plans are adhering (in form and in practice) to generally accepted standards of behavioral health care, and to 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.