The U.S. Court of Appeals for the Tenth Circuit, in David P. v. United Healthcare Ins. Co., has reversed a group health plan’s benefits claim denial because the plan’s claims administrator failed to follow ERISA’s claims procedures.
Law. Every ERISA-covered pension or welfare benefit plan must establish claims procedures for determining benefits claims and appeals of denied claims. In general, a plan is required to establish and maintain “reasonable” claims procedures that comply with the Department of Labor’s claims procedure regulations.
Facts. A participant in an employer’s group health plan submitted a claim for his daughter’s mental health inpatient residential treatment programs.
The plan covered mental health and substance abuse services that are “medically necessary,” and defined “medically necessary” as “[t]hose services…that are determined by the health plan administrator to be: provided for the diagnosis, treatment, cure or relief of a health condition, illness, injury or disease.”
The claims administrator denied coverage for the inpatient residential treatment provided to the participant’s daughter. The first denial letter stated that, “There is no clinical information received that indicates that your daughter required 24 hour monitoring to treat acute mental health symptoms. She did not want to hurt herself. She did not want to hurt others. It seems that her mood and anxiety symptoms could have been treated in a less intensive setting.”
The participant followed the plan’s internal appeal procedures to contest the benefits denial. During the appeal process, the participant: (i) provided the claims administrator with evidence that his daughter had, in fact, tried to hurt herself; and (ii) pointed out that several of her treating physicians had recommended long-term residential treatment. Nevertheless, the claims administrator upheld its denial.
The employee sued in federal district court to challenge the adverse benefit determination and won. The plan then appealed to the Tenth Circuit.
Tenth Circuit. The Court began its determination by noting that there were several procedural irregularities in the claims administrator’s denial of benefits.
First, in its denial, the claims administrator did not mention either the treating physicians’ recommendations that the daughter needed treatment in a residential care facility or her reported self-harm.
The Court then noted that the benefits denial violated ERISA’s claims regulations because the initial denial letter from the claims administrator failed to describe to the participant the additional information it needed to make a proper claims determination. The claim administrator’s appeal denial letter to the participant was the first time that it mentioned that there was insufficient documentation of the daily treatment services that the participant’s daughter received at the residential care facility. Because the appeal was the final level of administrative review, the participant had no opportunity to obtain any such information and provide it to the administrator.
Next, the Court observed that in deciding the appeal the claims administrator had failed to “engage” with the treating physicians’ recommendations that the daughter required treatment in a residential care setting. While “an administrator is not required to defer to the opinions of a treating physician…a reviewer may not arbitrarily refuse to credit opinions if they constitute reliable evidence from the claimant.”
The Court also determined that the claims administrator’s denial letter failed to convey to the claimant “[t]he specific reason or reasons for the adverse determination” and “the specific plan provisions on which the determination is based.” None of the claims administrator’s denial letters cited any of the daughter’s medical records. Nor were many of the statements that the administrator included in the denial letters “backed up with reasoning.” After reviewing the appeal documents, the administrator merely stated that “there was no clinical information provided to support the medical necessity for treatment in a psychiatric residential setting.”
Finally, the administrator argued that “if a reviewing court considered its internal notes, it would be clear that [it] had adequate and proper reasons to deny Plaintiffs’ claimed benefits.” The Court responded to this argument by noting that ERISA requires “dialogue” between the plan administrator and a claimant. The Court added that a court reviewing an administrator’s benefits decisions cannot consider reasons the administrator included in its internal notes when the administrator never conveyed those same reasons to the claimant.
Therefore, based on the foregoing issues the Court concluded that the claims administrator had abused its discretion in denying the participant’s claim for benefits because it “failed to comply with either the letter or the spirit of ERISA’s claims-processing requirements.” Accordingly, the Court remanded the case back to the district court for further consideration.