Appellant received intensive outpatient treatment for anorexia nervosa, which was covered by her employer’s Blue Shield health insurance plan (“Plan”). Appellant then registered at Castlewood, a residential treatment facility specializing in eating disorders, after her doctors advised her that she needed a higher level of care. Blue Shield denied Appellant’s claim for the residential care because its Plan did not provide coverage for residential care.
The district court granted Blue Shield’s motion for summary judgment on the grounds the Plan unambiguously excluded coverage for residential care and Castlewood did not qualify as a Skilled Nursing Facility. The district court did not address whether California’s Mental Health Parity Act (“Parity Act”) required coverage for residential care.
The United States Court of Appeals for the Ninth Circuit reviewed de novo the district court’s decision on coverage provided by the ERISA Plan. The parties agreed the Plan provided Blue Shield with discretion to interpret the plan’s terms. Thus, like the district court, the Ninth Circuit reviewed the administrator’s decision on an abuse of discretion standard.
Plaintiff however argued a moderated abuse of discretion review should apply based on four factors: (1) Blue Shield had a structural conflict of interest because it both makes coverage decisions and pays benefits, (2) Blue Shield gave inconsistent reasons for its coverage denial, (3) Blue Shield failed to explain the applicability of the Parity Act, and (4) Blue Shield excluded “residential care” from its coverage without defining this term.
The Ninth Circuit recognized a conflict existed because the same entity, Blue Shield, makes coverage decisions and pays claims. But there was no evidence Blue Shield had a history of bias in administering claims or whether it took steps to promote accurate decision making, both of which might have impacted the weight of this factor. As to the second factor, Blue Shield agreed it provided inconsistent explanations but argued these were minor and quickly corrected. The Ninth Circuit disagreed, finding Blue Shield’s communications were confusing and frustrating to Plaintiff. But, there was no evidence of bad faith or that Blue Shield was determined to deny the claim regardless of validity. The Court dismissed Appellant’s remaining arguments, finding Blue Shield had explained the applicability of the Parity Act and the term “residential care” was not ambiguous. Due to the structural conflict and inconsistent explanations for denial of coverage, the Court reviewed Blue Shield’s denial of coverage on an abuse of discretion standard, tempered by some skepticism.
The Ninth Circuit held the Plan did not cover Appellant’s treatment at Castlewood, because the provisions excluding residential care from coverage were clear and unambiguous. Moreover the Castlewood residential care facility did not qualify as a Skilled Nursing Facility because it did not provide nursing staff.
Nevertheless, the Ninth Circuit concluded the Parity Act required the Plan to provide coverage for Appellant’s claims. The Plan was subject to the Parity Act because it provided hospital, medical or surgical coverage. Consequently it was required to provide coverage for medically necessary treatment of anorexia nervosa, one of the nine severe mental illnesses expressly included in the Act.
Blue Shield argued Appellant’s treatment at the residential care facility was not a benefit required to be provided under the Parity Act, even if it was medically necessary. The Ninth Circuit disagreed and held the list of benefits enumerated in the Parity Act - outpatient services, inpatient hospital services, partial hospital services and prescription drugs - was not exhaustive. Instead, plans within the scope of the Act are required to provide coverage for all “medically necessary treatment” (including residential care) for “severe mental illnesses”, whether or not such benefits are covered for physical illnesses.
The Ninth Circuit also rejected Blue Shield’s argument that Appellant’s treatment at Castlewood was not medically necessary because Blue Shield had not raised lack of medical necessity as a reason for denial of benefits during the administrative process.
This opinion replaces an earlier decision of the Ninth Circuit in this case, which was reported at 656 F.3d 832 (2011). In that original opinion the Court reached the same conclusion but, instead of holding the term “Act” contained in the Parity Act’s implementing regulation referred to the Parity Act, the amended opinion assumed it referred to the Knox-Keene Act. Although he concurred with the majority's interpretation of “Act,” Judge Smith filed a dissenting opinion. Judge Smith disagreed with the majority’s conclusion the Parity Act requires “all medically necessary treatment for physical illnesses.” Instead, he concluded that by interpreting “Act” to refer to the Knox-Keene Act, the Court was required to find that benefits under the Parity Act are linked in scope to physical health coverage provided under the Knox-Keene Act. Under that interpretation, the Parity Act would not require coverage for residential treatment.
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This opinion is not final. It may be modified on rehearing or review may be granted by the United States Supreme Court. These events would render the opinion unavailable for use as legal authority.
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