Consumers and their attorneys are finding that judges are becoming more attuned to key legal nuances associated with the Federal Parity Law as highlighted through an expanding list of positive federal court decisions in recent years.  Although judges historically did not always understand the disclosure and transparency rights under the Federal Parity Law, judges are now connecting the dots and helping consumers secure the coverage that they deserve under their health insurance policies.

Here are some of the key parity litigation trends that The Kennedy Forum Legal Taskforce have tracked and analyzed over the past several years.

Litigation Lessons Learned

• Parity is a Standalone ERISA Action. ERISA has adopted several statutory provisions with the primary purpose of protecting beneficiaries through civil actions.  In addition to the long-standing ERISA § 502(a)(1)(B) Recovery of Benefit provision, courts have recently made it clear that plaintiffs can assert a parity violation through the ERISA § 502(a)(3) Parity Equitable Remedies clause.  The former allows the beneficiary to recover the monies owed to the individual under the terms of the plan (e.g., for a wrongful MH/SUD denial of coverage), and the latter allows the beneficiary to stop (e.g., enjoin) the inappropriate plan action or determination AND seek appropriate equitable relief to redress the violations.

The courts have held that these two causes of action are not duplicative.   As a result, the courts are now allowing at least two ERISA remedy pathways for plaintiffs to recover their MH/SUD insurance benefits that have been wrongfully denied.  However, it should be noted that punitive damages are not available under ERISA.

• More Disclosure. Many court decisions now have been published finding that health plans have failed to adequately disclose the reasons for a denial of care decision or offer sufficient detail regarding the medical/surgical analogue.  This has become more apparent in Federal Parity Law ERISA § 502(a)(3) claims, also known as the Parity Equitable Remedies clause, where courts are acknowledging that plaintiffs need more information to assert parity violations.  This point is highlighted especially in the U.S. DOL amicus brief in NR v Raytheon(filed on Oct 7, 2020).
• More Discovery. Prior to 2018, courts often granted defendants’ motions to dismiss Federal Parity Law ERISA § 502(a)(3) claims for failure to state a clear legal claim upon which relief can be granted. Under the Federal Rule of Civil Procedure 12(b), a defendant’s motion to dismiss a plaintiff’s claim often is granted by judge even though the plaintiff was asking for more discovery.  This trend has diminished over the past several years, and the many judges are now granting plaintiffs more leeway to conduct discovery or amend their complaint to file a better documented parity action.  That being said, plaintiffs’ legal counsel cannot go on a fishing expedition regarding potential ERISA claims related to parity violations.  Interrogatories must be limited and focused such as asking for specific examples of medical/surgical intermediate care when comparing to MH/SUD RTC.
• Parity Pleading. Many judges in their published opinions articulate the requirement for plaintiffs to draft and file a baseline pleading, which at least covers basic information regarding a “facial” or an “as applied” parity violation regarding the medical/surgical analogue to avoid a summary judgment motion.  In this context, a facial challenge is one where the facts of the case directly support a parity violation. In contrast, an “as applied” challenge means additional discovery or legal analysis will be needed to establish that the Federal Parity Law or applicable state parity law has been violated.

In either situation, the plaintiff’s attorneys still need to plead the basic elements of a parity claim as detailed below.   This can sometimes be a challenge depending on the transparency of applicable plan terms or if the health plan has not disclosed information regarding the medical/surgical analogue.

• Parity Claim Elements. Courts have clarified the elements of a parity claim for both a “facial” and “as applied” alleged violation.  The elements are:
  • Coverage Type. Determine whether the plan is subject to the Federal Parity Law;
  • Benefit Scope. Determine if the plan provides both medical/surgical and MH/SUD coverage;
  • Limitation. Identify a specific treatment limitation related to the MH/SUD benefits;
  • Analogue. Identify medical/surgical care covered by the plan that is analogous to the MH/SUD for which the plaintiffs seek benefits; and
  • Disparity. Plausibly allege a disparity between the treatment limitation on MH/SUD benefits as compared to the limitations that defendants would apply to the covered medical/surgical analogue.

• NQTL Insights. With the growing number of successful parity court decisions (mostly to avoid defendant summary judgment motions), the courts are detailing the types of nonquantitative treatment limitations (NQTLs) that may be or are subject to a parity violation.  Here are a few examples:
  • Cannot interpret MH/SUD guidelines in a more restrictive fashion than the medical/surgical analogue guidelines
  • Applying acute MH/SUD standards of care when the medical/surgical analogue uses sub-acute medical/surgical standards of care
  • One-sided plan exclusions for non-restorative speech therapy and outdoor behavioral health therapy – among others.

• Class Actions. More class actions are being certified and judges are giving some leeway to allow legal counsel to identify members of the class that have plausibly suffered the same injury.

The Wit Echo Effect

• Generally Accepted Standards of Care. Stemming from the Wit decision, the application of “generally accepted standards of care” (GASC) as a common law standard is catching on.   Judges are holding a greater number of health plans accountable for failure to apply GASC in support of their utilization management (UM) guidelines and parity applications.
• Move to Nonprofit Specialty Clinical Guidelines. A number of lawsuits are challenging the viability of internal and commercially used UM guidelines regarding whether they meet GASC requirements.
• Medical Necessity Matters. With the Wit decision and growing number of successful parity cases, courts are still looking at whether a particular treatment was medically necessary.  Regulators and judges are putting pressure on plans to be more transparent, which in turn is holding health plans to provide medically necessary care based on objective and consistent standards of care.
• UM and Appeal System Broken. The published cases are showcasing how inappropriate denials of care or faulty appeals are generating more parity claims.  Another common situation is when a health plan changes the reason for the denial of care during the appeals process.  For more information about some of the key challenges associated with how the U.S. health insurance system makes “medically necessity” decisions and the appeals system when a denial of care is made, check out these two publications:
  • Filing an Appeal Based on a Parity Violation.
  • The Health Insurance Appeals Guide:  A Consumer Guide for Filing Mental Health and Substance Use Disorders (MH/SUD) Appeals.

Additional ERISA Insights

• Summary Judgement Motions. Although most parity cases include both an ERISA § 502(a)(1)(B) Recovery of Benefit claims and ERISA § 502(a)(3) Parity Equitable Remedy, recent court ruling more frequently address legal issues regarding the parity claims (the latter) and not the breach of fiduciary claims (the former).  Defendants’ legal counsel appear to be focusing on challenging the parity violations in most summary judgment motions.
• Standard of Review. Plaintiffs typically ask courts to review their cases based on a “de novo” standard of review, meaning the judge can review a case without deferring to any previous conclusions made by a lower court judge or the ERISA plan fiduciary who made the original denial of care. This affords the plaintiffs more due process.  However, in most cases, judges default to an “arbitrary and capricious” standard of review, meaning the defendant must have acted unreasonably or in bad faith, when the plan the plan administrator is given any discretion under ERISA to interpret the plan documents (which is more common place in comparison to when a plan administer does not have discretion to interpret the plan documents). Even with the tougher threshold of “arbitrary and capricious” standard of review, many judges are finding that the administrator could have abused or did abuse that discretion when it comes to a potential parity violation or related coverage determination.
• Named Defendants. In many of these lawsuits for self-funded health plans, both the third-party administrator (TPA) and the employer-sponsor are named defendants.   Self-funded employers need to understand that they are liable as well as the TPA that is often committing the parity or ERISA violation.  As a general matter, employers have been too passive in their oversight of their plan administration regarding parity compliance.  It is likely more legal actions will be holding them accountable in the future.

Legal Limitations

• Limited State Actions. Unfortunately, ERISA preempts state law claims, so state-based actions few and far between. This can limit a plaintiff’s menu of legal actions to just ERISA claims (in contrast to a wide range of state actions such as a breach of contract or negligence claims).
• Limited damages. Unfortunately, ERISA does not allow punitive damages.  So a plaintiff may be entitled to the actual recovery of lost benefits and attorney fees.  But punishing a defendant through additional compensatory damages (which can happen in other types of state and federal litigation) is not an option.  Congress did this to not create a chilling effect for employer-sponsored benefits by capping plan’s potential liabilities.  Unfortunately, this also reduces the potential compensation for plaintiff’s legal counsel, who often goes at risk to file these types of lawsuits.
• Collection of Attorney Fees. Although some judges award attorney fees to successful plaintiff’s lawyers, courts do not consistently award such fees. So even when the Plaintiff wins on the merits of the case, this means plaintiff’s attorneys have to take some of their clients “recovery of benefits” to pay their legal bills or forgo payment all together.