October 5, 2022
Source: The Kennedy Forum, 10/5/2022
The U.S. House of Representatives recently passed the Mental Health Matters Act, a bill that could have broad implications when it comes to improving access to mental health and addiction care in this country.
There are two critical provisions within the bill that The Kennedy Forum has been pushing to advance for years: The Strengthening Behavioral Health Benefits Act (Title VI) and the Employee and Retiree Access to Justice Act (Title VII).
The Strengthening Behavioral Health Benefits Act (Title VI) – introduced by Congressman Donald Norcross (NJ) and Senators Smith (MN) and Murphy (CT) – would provide civil monetary penalty authority to the U.S. Department of Labor (USDOL) to enforce the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA), which required insurers to cover mental health and addiction treatment no more restrictively than treatment for physical health. In other words, Title VI would allow USDOL to fine health plans and plan administrators who don’t make good-faith efforts to comply with the law. This provision previously passed the House as part of the Build Back Better Act this spring.
The ability to fine will position USDOL, which currently has one investigator for every 12,500 plans, to step in more aggressively. USDOL has asked Congress to give it this authority, and President Trump’s Opioid Commission included it as a key recommendation for addressing the opioid epidemic.
The second critical provision, the Employee and Retiree Access to Justice Act (Title VII), would better protect the 136 million Americans enrolled in private sector employer (ERISA) health plans. This legislation would prohibit ERISA plans from inserting mandatory arbitration provisions into plan policies that prevent consumers from using the courts to challenge wrongful coverage denials. While current regulations prohibit such provisions, plans may nonetheless seek to use them and argue that the Federal Arbitration Act overrides the regulations. If these provisions become widespread, and are deemed to be enforceable, they would have devastating consequences for mental health parity. This is because arbitration results aren’t public and cannot be used to change health plans’ widespread practices that affect large numbers of people – not only the individual who brought the claim.
The Employee and Retiree Access to Justice Act also addresses a common practice where health plans are allowed to stack the deck against consumers by requiring an extraordinarily high burden of proof to receive promised benefits. By inserting “discretionary clauses” into their plan policies, ERISA plans permit themselves to interpret the meaning of the terms of the policies they administer and the facts they consider when adjudicating benefits under these policies.
Many ERISA plans use discretionary clauses as a strategy to evade liability for improperly denying benefits, particularly for mental health and substance use disorders, because discretionary clauses obligate courts to broadly defer to insurers’ coverage determinations. Under the deferential standard of review, courts only reverse benefit denials that are found to be “arbitrary and capricious,” even if the court believes the plan has made an incorrect determination.
A recent example of the problematic higher burden of proof required is Wit v. United Behavioral Health (UBH), an ERISA case that has been recognized nationwide as a landmark case for mental health. Despite a devastating 100-page plus trial decision, which found that UBH had breached its fiduciary duties by placing its own financial interests over the needs of its beneficiaries by denying nearly 70,000 claims based on substandard medical necessity guidelines that conflicted with generally accepted standards of care (“GASC”)—and in express violation of plan terms and the laws of four states—a 9th Circuit panel recently reversed Wit in a sparse, seven-page decision.
The panel completely ignored detailed and extensive findings of fact, including that UBH had lied to regulators about its medical necessity guidelines and that its financial officers had vetoed UBH clinicians’ unanimous preference to use non-profit guidelines that would have complied with GASC solely because the change would cost more money for UBH. Instead, the panel reversed this important holding solely based on the standard of review, finding that it was “not unreasonable” for UBH to interpret its ERISA plans to allow it to apply medical necessity guidelines that were substantially more restrictive than generally accepted standards of care.
Nationally, there is a clear movement by states regulating fully insured ERISA plans to ban discretionary clauses. In fact, the National Association of Insurance Commissioners (NAIC) has adopted a model law entitled the “Prohibition on the Use of Discretionary Clauses Model Act.” The NAIC describes the purpose of the model act to prohibit discretionary clauses “to assure that health insurance benefits and disability income protection coverage are contractually guaranteed, and to avoid the conflict of interest that occurs when the carrier responsible for providing benefits has discretionary authority to decide when benefits are due.” Nearly half of states have now banned these clauses.
Where the clauses are allowed to stand, patients are at a terrible disadvantage in challenging wrongful denials of health care coverage. Federal Circuit Courts have articulated the unfairness that can result from applying a discretionary review in benefits cases, while various federal trial courts have noted that the standard of review in benefits matters is determinative and that the abuse of discretion standards of review permits incorrect outcomes. (See list of relevant cases below.)
The Kennedy Forum will closely monitor the movement of the Mental Health Matters Act—and the two critical provisions outlines above—and report back as appropriate.
IMPORTANT FEDERAL CASES INVOLVING DISCRETIONARY CLAUSES
Federal Circuit Court Cases
Standard Ins. Co. v. Morrison, 584 F.3d 837, 845 (9th Cir. 2009) – more losses will be covered where de novo review results from discretionary ban.
Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 976 (9th Cir. 2006) – observing that discretionary language must be apparent since discretion can leave insureds “high and dry.”
Cosey v. Prudential, 735 F.3d 16, 167–68 (4th Cir. 2013) – same.
Herzberger v. Standard Ins. Co., 205 F.3d 327, 331 (7th Cir. 2000) – “The broader that discretion, the less solid an entitlement the employee has.”
Fischer v. Liberty Life Assur. Co. of Bos., 576 F.3d 369, 376 (7th Cir. 2009) – ruling for insurer because under abuse of discretion review the court must defer to plan administrator’s findings of fact.
Krolnik v. Prudential Ins. Co. of Am., 570 F.3d 841, 844 (7th Cir. 2009) – ruling for plaintiff under de novo review but noting that if discretionary review applied the insurer’s decision “would be sustained easily.”
Gibbs ex rel. Estate of Gibbs v. CIGNA Corp., 440 F.3d 571, 577–78 (2d Cir. 2006) – holding that the standard of review affects a participant’s substantive rights, since abuse of discretion review allows a court to uphold erroneous decisions.
Brigham v. Sun Life of Canada, 317 F.3d 72, 86 (1st Cir. 2003) – explaining that though “it seems counterintuitive that a paraplegic suffering serious muscle strain and pain, severely limited in his bodily functions, would not be deemed totally disabled” the deferential standard of review permits it.
Federal Trial Court Cases
Robertson v. Blue Cross & Blue Shield of Texas, 99 F. Supp. 3d 1249, 1261 (D. Mont.), aff’d sub nom. Robertson v. Blue Cross, 612 F. App’x 478 (9th Cir. 2015) – “The masks of the law in this case conceals the person at risk of dying by a deferential standard of review and the rules of legal interpretation. The result is a determination that Blue Cross’s denial of benefits was legally, but perhaps not morally, reasonable.”
Criss v. Union Sec. Ins. Co., 26 F. Supp. 3d 1161, 1164 (N.D. Ala. 2014) – “In response to Bruch, an increasing number of states have adopted a statute or insurance industry rule that precludes the inclusion of the so-called “discretionary clause” in a disability insurance policy” and “have accomplished in their states what Congress intended, namely, trials de novo for beneficiaries after they have been denied and unsuccessfully exhausted their internal plan remedies.”
Morgenthaler v. First Unum Life Ins. Co., No. 03 CIV. 5941 (AKH), 2006 WL 2463656, at *3 (S.D.N.Y. Aug. 22, 2006) – describing its two contradictory rulings on Unum policies due to the different applicable standards of review.
Harrison v. UnitedHealth Grp., No. 2:16-CV-11406, 2018 WL 1528177, at *6 (S.D.W. Va. Mar. 28, 2018) – a court could disagree but must defer.
Fessenden v. Reliance Standard Life Ins. Co., No. 3:15CV370-PPS, 2018 WL 461105, at *1-6 (N.D. Ind. Jan. 17, 2018), vacated and remanded, 927 F.3d 998 (7th Cir. 2019) – deferential review means “the die was essentially cast” against insured’s claim and “the claimant may lose even if a preponderance of the evidence supports a finding of disability, so long as the decision has “rational support in the record.”
Hafford v. Aetna Life Ins. Co., No. 16-CV-4425 (VEC)(SN), 2017 WL 4083580 (S.D.N.Y. Sept. 13, 2017) – adopting Magistrate’s facts but reversing and entering judgment in favor of insurer after concluding that the Magistrate had wrongly applied de novo review.
Rizzi v. Hartford Life & Acc. Ins. Co., 613 F. Supp. 2d 1234, 1249 (D.N.M. 2009), aff’d sub nom. Rizzi v. Hartford Life & Acc. Inc. Co., 383 F. App’x 738 (10th Cir. 2010) – describing the court’s role as “not to referee a battle of physicians or to decide whether Defendant’s decision to terminate Plaintiff’s LTD benefit payments was correct. It is simply to determine whether Defendant reasonably exercised its discretion and based its determination on substantial evidence.”
Johnston v. Commerce Bancshares, Inc., 276 F. Supp. 3d 926, 939 (W.D. Mo. 2017), aff’d sub nom. Johnston v. Prudential Ins. Co. of Am., 916 F.3d 712 (8th Cir. 2019) – “if the Court were the claims administrator, it might have reached a different conclusion” but holding the plan administrator did not abuse its discretion.
Graham v. L & B Realty Advisors, Inc., No. CIV.A. 3:02CV0293-N, 2003 WL 22388392, at *4 (N.D. Tex. Sept. 30, 2003) – outcome would be different under de novo review where court could perform its own fact-finding.
Deloach v. Great Atl. & Pac. Tea Co. LTD Plan, No. 09-14087, 2013 WL 363840, at *5 (E.D. Mich. Jan. 30, 2013) – “While it appears to the court that an examination of the administrator’s actions for arbitrary and capricious decision making would result in a finding for defendants, under the de novo standard of review, the court is convinced that its weighing of the evidence requires reversal of Cigna’s decision to terminate benefits.”