Attention turns to employee benefit plans as mental healthcare claims rise

As with any other form of litigation, the analysis for bringing an employee benefits lawsuit involves some weighing of the actual costs against the potential benefits. For individual litigants, benefit claims over smaller dollar amounts tend to fall by the wayside. But when it comes to costly healthcare claims, often, the decision is made when the denial letter arrives. Expensive healthcare claims, some totaling hundreds of thousands of dollars, mandate litigation. Hefty medical bills are unbudgeted family expenses, and most American families simply cannot afford to pay for such treatments out-of-pocket. Put another way, a household budget does not serve as a reinsurer.

One area that has seen significant litigation is with claims involving inpatient residential treatment centers for children and teens. Most of these cases proceed under the Employee Retirement Income Security Act of 1974 (“ERISA”) given that many families are insured through the employee benefit plans provided by their private employers.

These cases are on the rise. In December, the U.S. Surgeon General issued its Protecting Youth Mental Health: A Surgeon General Advisory. The report looked at several factors influencing the rise in adolescent and teenage mental health issues, from social media to the effects of the pandemic. Troublingly, the report noted a record 51% increase in attempted suicides in early 2021 for adolescent girls when compared with the same measuring period in 2019. The report also noted that one in three high school students and half of female students reported persistent feelings of sadness or hopelessness, an overall increase of 40% over the past decade.

The causes for the increases abound, but the Surgeon General’s unsurprising recommendation is that employee benefit plans get serious about this issue. The report recommends that plans provide “access to comprehensive, affordable, and age-appropriate mental health care for all employees and their families, including dependent children.” The Surgeon General noted that “research shows that parental mental health challenges not only impact their productivity in the workplace but can also affect the mental health of their children.” The report concluded that, “employers should offer health insurance plans that include no or low out-of-pocket costs for mental health services, and a robust network of high-quality mental health care providers.”

While Surgeon General’s report highlighted the needed changes for the benefit plans themselves, it is noteworthy that the litigation landscape in this area is improving for families. The Surgeon General’s advisory follows the landmark employee benefits case of Wit, et al. v. United Behavioral Health, et al., No. 14-cv-02346, 2019 WL 1033730 (N.D. Cal. Mar. 5, 2019) in which a federal district court in the Northern District of California overturned more than 60,000 claim denials, including parents seeking residential treatment for their children struggling with a range of mental health conditions including eating disorders and other self-harming behaviors. The case was appealed this summer, and the U.S. Department of Labor filed an amicus brief urging that the decision be upheld.

In Wit, the court, after an extensive bench trial (a rarity in ERISA benefits claims), issued a lengthy opinion analyzing nearly every aspect of United Healthcare’s claims processing and financial operations as it related to costly residential treatment. Wit closely examined the company’s claims processing guidelines. The court found the guidelines — which were generically applied to all residential treatment claims — violated the Generally Accepted Standards of Care for mental health treatment. Parents who have had these claims are familiar with claims processing guidelines since they are almost always cited as the reason for the denial – often with a finding that a child may ‘safely’ be treated in a lesser care facility than a residential treatment center.

Wit found that United had violated ERISA by placing an “an excessive emphasis on addressing acute symptoms and stabilizing crises while ignoring the effective treatment of members’ underlying conditions.” This “defect” led to a systemic problem in processing mental healthcare claims and consequently resulted in a “significantly narrower scope of coverage than is consistent with generally accepted standards of care.” Id. at *22. By reviewing claims in a manner inconsistent with the standards of care and artificially narrowing the limits of coverage, United violated ERISA and the statute’s fiduciary duty rules.

This was not the first time a court had found a systemic problem in mental healthcare denials. Prior to Wit, federal cases challenging the mental healthcare treatment of children with autism approached the problem similarly by scrutinizing an insurer’s treatment guidelines. In a case I co-litigated, Potter v. Blue Cross Blue Shield of Michigan, 10-CV-14981, 2013 WL 4413310 (E.D. Mich. Mar. 30, 2013), a federal district court undertook an extensive evaluation of generically applied coverage guidelines and found them lacking. The court ruled they did not comport with the updated medical standards of care for the treatment of autism. In Potter, like Wit, the court ordered the re-administration of an entire class of autism treatment claims, as the denials were based on generic medical policies that were outdated and violated ERISA.

Kids’ mental healthcare claims are real and are increasingly becoming a big issue in benefits law. The number of claims is rising, the cost of treatment is increasing, and the old methods of using generically applied treatment guidelines are being closely scrutinized. When an employee benefit plan’s rationale for denying a mental healthcare claim violates ERISA’s fiduciary standards, federal courts are comfortable overturning those denials on a mass scale.