A recent decision by the U.S. Court of Appeals for the Ninth Circuit (Wit et al. v. United Behavioral Health and Alexander et al. v. United Behavioral Health) exemplifies the challenge in balancing a desire to cover evolving treatments for mental health and substance abuse disorders against plan sponsors’ and insurers’ general authority over plan design and the administrator’s discretion to interpret the plan and decide claims.  The case involved United Behavioral Health’s (“UBH”) complete or partial denials of claims related to treatment for mental health and substance abuse.

A federal district court (see here and here) had ordered UBH to reprocess over 50,000 claims on the ground that UBH’s guidelines for making coverage determinations did not comport with generally accepted standards of care (“GASC”).  The district court concluded that UBH’s guidelines improperly applied cost-benefit analysis to reject coverage for more comprehensive treatments.  For example, the district court concluded that UBH’s guidelines overly emphasized treatment of acute symptoms over treatment of underlying conditions and inappropriately did not include level-of-care criteria specifically tailored to children.

Among other things, UBH argued on appeal that: (1) the ERISA beneficiaries lacked standing to pursue their claims; and (2) the trial court had failed to correctly apply the abuse of discretion standard in connection with its reprocessing order.

In an unpublished decision, a Ninth Circuit panel rejected UBH’s standing argument, but still reversed the order to reprocess claims, because—

  • Under the applicable plans, compliance with GASC was required but not sufficient to justify coverage—e., services could be covered only if they were within the scope of both GASC and what the plan covered; and
  • The plan administrator’s application of the plan’s standards could be reviewed only for abuse of discretion. This meant that, even if the court disagreed with UBH’s balancing of costs and benefits or its final decision, the court could not overturn the administrator’s decision unless it was unreasonable.

The Ninth Circuit also held that an alleged conflict of interest based on UBH serving as both plan administrator and insurer/payer was not sufficient to change the outcome on the facts of the particular case.

The Ninth Circuit’s decision illustrates how claims for coverage, especially for mental health services, are inherently fact-specific because they require analysis of the patient’s medical needs, medical necessity, and sufficiency of alternative treatments.  Rather than address the merits of any particular claim, the Ninth Circuit simply concluded that in light of the discretion conferred to UBH to interpret the plans, it was not appropriate to send over 50,000 claims back to UBH for review en masse.

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Photo of Joseph Clark Joseph Clark

Joseph E. Clark is a senior counsel in the Labor & Employment Law Department and a member of the Employee Benefits & Executive Compensation Group where he focuses on complex employee benefits litigation.

Joe represents a diverse range of clients from the time…

Joseph E. Clark is a senior counsel in the Labor & Employment Law Department and a member of the Employee Benefits & Executive Compensation Group where he focuses on complex employee benefits litigation.

Joe represents a diverse range of clients from the time a claim is asserted through trial or arbitration, whether it is defending plan fiduciaries against class action claims of fiduciary breach or prohibited transactions or in connection with government investigations, or defending employers against multiemployer pension plan claims for withdrawal liability.  These clients include financial service providers, investment managers, Fortune 500 corporations, and benefit plan committees.

Outside of the context of litigation, Joe also advises fiduciary clients regarding their fiduciary responsibilities and employers regarding various withdrawal liability issues.

A co-editor of Proskauer’s Employee Benefits & Executive Compensation blog, Joe has authored pieces on employee stock ownership plans, excessive fee claims, fiduciary breach, investigation and determination of benefits claims, and best practices for plan drafting. He has also published several articles regarding these issues in BNA Insights.

Photo of Seth Safra Seth Safra

Seth J. Safra is chair of Proskauer’s Employee Benefits & Executive Compensation Group. Described by clients as “extremely knowledgeable, practical, and strategic,” Seth advises clients on compensation and benefit programs.

Seth’s experience covers a broad range of retirement plan designs, from traditional defined…

Seth J. Safra is chair of Proskauer’s Employee Benefits & Executive Compensation Group. Described by clients as “extremely knowledgeable, practical, and strategic,” Seth advises clients on compensation and benefit programs.

Seth’s experience covers a broad range of retirement plan designs, from traditional defined benefit to cash balance and floor-offset arrangements, ESOPs and 401(k) plans—often coordinating qualified and non-qualified arrangements. He also advises tax-exempt and governmental employers on 403(b) and 457 arrangements, as well as innovative new plan designs; and he advises on ERISA compliance for investments.

On the health and welfare side, Seth helps employers provide benefits that are cost-effective and competitive. He advises on plan design, including consumer-driven health plans with HSAs, retiree medical, fringe benefits, and severance programs, ERISA preemption, and tax and other compliance issues, such as nondiscrimination and cafeteria plan rules.

Seth also advises for-profit and non-profit employers, compensation committees, and boards on executive employment, deferred compensation, change in control, and equity and other incentive arrangements. In addition, he advises on compensation and benefits in corporate transactions.

Seth represents clients before the Department of Labor, IRS and other government agencies.

Seth has been recognized by Chambers USA, The Legal 500, Best Lawyers, Law360, Human Resource Executive, Lawdragon and Super Lawyers.