Court Confirms Health Insurers Can’t Sell Discriminatory Insurance Policies

The Ninth Circuit Court of Appeals (the federal appeals court with jurisdiction over Washington and other west coast states) is having a busy summer for insurance cases. On the heels of recent decisions regarding attorneys’ fees in ERISA-governed insurance disputes and insurers’ duty to reasonably investigate insurance claims comes the July 14, 2020 ruling in Schmitt v. Kaiser Foundation Health Plan of Washingtonholding health insurers cannot design health plans that have a discriminatory impact under the Affordable Care Act (a/k/a “Obamacare”).

For decades before the ACA, it was legal for health insurers to design health plan benefits however they chose, even if those plan designs had a discriminatory impact. As long as the insurer provided the same benefits to everyone, the insurer could decide what benefits to offer and what not to offer. Insureds could not sue their insurer for designing a health plan that had a discriminatory effect.

The Schmitt ruling confirms that the ACA changed that. Part of the ACA’s purpose is to expand so-called “minimum essential coverage” under health insurance policies. There are certain minimum benefits that must be included in most health plans. This includes, for instance, emergency services, maternity care, mental health treatment, and rehabilitative treatment.

Additionally, the ACA specifically provides that insurers cannot design health plans in a discriminatory manner. It states that an insurer may not “design benefits in ways that discriminate against individuals because of their…disability.”

The Schmitt ruling emphasizes that the ACA is different from prior federal laws that had been interpreted not to prohibit discriminatory plan design. Prior to the ACA, no federal law guaranteed any person adequate health care. The ACA, on the other hand, explicitly guarantees the right to minimum health insurance benefits and prohibits designing health plans that deprive people of those minimum benefits on a discriminatory basis.

The court noted the ACA does not require insurers cover all treatment no matter how costly or ineffective. But the court emphasized insurers cannot design health coverage that has a discriminatory impact.

The Schmitt ruling is an important victory for advocates of fair insurance coverage.

ERISA Plans Can’t Discriminate Against Domestic Partners, Court Rules

In Washington, and many other states, domestic partners enjoy the same rights and legal protections as spouses.  The Ninth Circuit Court of Appeals recently confirmed that domestic partnerships’ equal treatment under state law extends to ERISA plans.

ERISA plans typically give the plan administrator broad discretion to interpret the terms of the plan.  This often means the plan administrator has huge leeway in deciding who qualifies for benefits under the plan.  If the plan document leaves any room for interpretation, courts often defer to the plan administrator’s decision about who gets benefits, even if the decision seems unfair or counter-intuitive.

The Ninth Circuit’s decision in Reed v. KRON/IBEW Local 45 Pension Plan ruled that ERISA plan administrators’ discretion does not extend to discriminating against domestic partners when deciding who qualifies for benefits under the plan.

In Reed, David Reed and Donald Gardner had been in a committed, long-term relationship for decades, ultimately becoming domestic partners.  Gardner subsequently retired and began receiving pension benefits under the ERISA pension plan sponsored by his former employer KRON television.  The KRON ERISA plan entitled the spouses of pensioners who passed away to surviving spouse benefits.

After Gardner passed away, Reed filed a claim for surviving spouse benefits.  KRON’s plan administrator denied Reed’s claim.  The plan administrator claimed it was within its discretion to interpret surviving spouses as excluding domestic partners.

The court acknowledged that ERISA plan administrators are entitled to broad discretion, but nevertheless ruled in Reed’s favor.  The court noted state law “afforded domestic partners the same rights, protections, and benefits as those granted to spouses” and nothing in ERISA required otherwise.  The Court ordered the ERISA plan to pay surviving spouse benefits to Reed.

The Reed case is an important reminder that ERISA plan administrators’ discretion is not unlimited, and also represents an important victory for domestic partners.

Health Plans Can’t Discriminate Against Mental Health Treatment Says Ninth Circuit

Among the challenges of a mental health condition is the difficulty persuading health insurers to cover treatment.  Mental health conditions can be difficult to objectively diagnose and can require lengthy and expensive treatment often with little prospect of a conventional “cure.”  Hence, health plans have a powerful incentive to minimize coverage for mental health conditions to reduce costs.

In response, the federal government, as well as Washington and many other states, have enacted mental health parity laws.  In general, these laws prohibit health insurers and health plans from discriminating against mental health conditions by mandating mental health conditions be covered to the same degree as physical ailments.

On June 6, 2018, the Ninth Circuit Court of Appeals confirmed the federal Mental Health Parity Act prohibits health plans from discriminating against mental health conditions for the purposes of health insurance coverage. In Danny P. v. Catholic Health Initiatives, the court determined the health plan violated the law by denying the plaintiff’s claim for the cost of an inpatient stay at a residential mental health treatment facility.

In ruling for the plaintiffs, the court determined the Mental Health Parity Act required the health plan’s coverage of inpatient mental health treatment facilities be no more restrictive than coverage for stays at skilled nursing facilities.  Since the Act prohibited imposing more restrictive coverage requirements on mental health treatment than on treatment for physical conditions, the Act precluded the health plan from deciding to cover room and board at skilled nursing facilities for medical patients while refusing to provide the same coverage for mental health inpatient care.

The Danny P. decision is an important win for patients seeking mental health treatment and vindicates Congress’ intent in passing the Mental Health Parity Act that mental health patients be free from discrimination by their health plans.