Plan May Deny Coverage for Bariatric Surgery

The U.S. Court of Appeals for the Fifth Circuit, in Rittinger v. Healthy Alliance Life Insurance Company, has ruled that a plan administrator that has been granted discretionary authority with regards to claim decisions, may deny a claim for bariatric surgery when there are conflicting medical opinions as to whether the surgery falls within an exception that would have given the participant coverage for the procedure.

Facts. A plan participant underwent bariatric surgery but was denied coverage by her group health plan. In the denial, the plan administrator referred to a section of the plan document which stated that the plan does not cover "bariatric surgery, regardless of the... purpose."

However, the participant pointed to an exception to the general rule which stated that, "This exclusion does not apply to conditions including but not limited to...excessive nausea/vomiting." The participant claimed that the plan ignored relevant medical evidence that she suffered from excessive nausea and vomiting and, therefore, she came within the exception to the general rule.

When the plan administrator continued to deny her benefits, she sued.

Law. Generally, the default standard of review of benefit denials in an ERISA-covered plan is a "de novo" standard of review, which means that a court will independently review a claim and not defer to the plan administrator's, or insurer's, decision. However, if the plan document (or insurance contract) grants discretionary authority to determine benefit entitlement, the court applies a less demanding "arbitrary and capricious" standard of review, which means that the plan's or insurer's decision will be upheld unless it is determined to be arbitrary and capricious.

Decision. The court took notice that the plan provisions gave the plan administrator discretionary authority with regard to healthcare claims and, therefore, the case should be reviewed under the arbitrary and capricious standard.

The court then stated that under the arbitrary and capricious standard, a "plan administrator abuses its discretion when the decision is not based on evidence, even if disputable, that clearly supports the basis for its denial....[W]e are not asking what is the best construction of the exception to the [bariatric surgery rule]....We are asking whether [the plan administrator's] construction was so egregiously wrong that it flouts the plan's plain language and constitutes an abuse of discretion."

The court ruled that it could not say that the plan administrator's interpretation "was so off-kilter as to be an abuse of discretion." The medical records up to the time of the participant's surgery did not reflect treatment for nausea and vomiting. Moreover, the participant's preauthorization documentation requested treatment for "morbid obesity" and was coded for obesity "due to excess calories," but did not indicate any excessive nausea or vomiting.

The court, therefore, concluded that "when faced with two competing reasonable medical views, a plan administrator may exercise discretion and choose either one of them. The court then stated "We routinely recognize that plan administrators deserve substantial discretion in their decisions."

The court therefore ruled in favor of the plan.

Impact on Employers. The standard of review that a court uses in a benefits dispute can determine whether the plan administrator's decision will stand. In fact, it is much less likely that a plan's determination will be upheld when a court applies the de novo standard of review.

Employers with insured health plan arrangements are advised to have their plan documents, group policies and insurance certificates reviewed by qualified benefits counsel to determine if those documents properly provide plan administrators with discretionary authority to administer and interpret the terms of their plans. Otherwise, they may discover that the governing documents do not contain language sufficient to grant discretionary authority to the plan administrator to determine benefit claims.