I’ve previously blogged about cases in which insurers were limited from raising new reasons to deny coverage after the fact. Whether an insurer can do so is a complex question that depends on the facts of the specific case. It also depends on what law applies. A recent ruling from the Ninth Circuit Court of Appeals confirms that, if ERISA applies, the rule is clear: ERISA-governed benefit plans cannot raise new reasons for denying benefits after they get sued.
In Beverly Oaks v. Blue Cross & Blue Shield, doctors at the Beverly Oaks clinic sued Blue Cross & Blue Shield (BCBS) claiming that BCBS should have paid for the treatment of certain patients of the clinic who had health insurance coverage from BCBS under their ERISA plans. The doctors relied on agreements the patients signed promising that the doctors could sue the insurance plan directly to pay their treatment bills. These agreements are known as an “assignment of benefits.’
No one disputed that the ERISA plans at issue banned the patients from signing the “assignment of benefits” forms. The plan documents repeatedly stated that benefits could not be assigned to third parties like the doctors.
But BCBS failed to invoke the assignment ban in response to the doctors’ claims. Instead, BCBS processed the claims on the merits, mostly denying them for reasons unrelated to the assignment of benefits. At the end of the day, BCBS paid the doctors only $130,000 out of $1.4 million in medical bills.
BCBS raised the ban on assigning benefits only after the doctors filed a lawsuit under ERISA seeking to overturn BCBS’ denial of the claims on the merits. BCBS told the federal District Court that the doctors had no right to sue on behalf of their patients because the assignment of benefits agreements were not allowed under the terms of the ERISA plans. The District Court agreed and dismissed the case.
But the Ninth Circuit reversed and allowed the doctors’ suit to proceed. That court emphasized that ERISA requires employee benefit plans (including their agents like BCBS) to state all of the reasons for denying a claim in the first instance. Allowing plan administrators to keep arguments for denying claims in their proverbial “back pockets” until litigation invites abuses and cuts against claimants’ right to respond to the basis for any claim denials:
“ERISA and its implementing regulations are undermined where plan administrators have available sufficient information to assert a basis for denial of benefits, but choose to hold that basis in reserve rather than communicate it to the beneficiary.”
The Court of Appeals also relied on the fact that BCBS representatives repeatedly told the doctors that they could seek reimbursement for medical bills on their patients’ behalf–before the doctors provided treatment–without mentioning the ban on assignments of benefits.