Smith v. United HealthCare: Starting Another Class Actions Cycle?

Health Highlights

In July 2019, Judge Gilliam of the Northern District of California issued an order interpreting the different avenues a plaintiff may pursue in bringing a parity claim—a decision that may be consequential to health plans and health insurance companies that issue plans governed by the Employee Retirement Income Security Act of 1974 (ERISA).

Factual Background

In 2018, Plaintiff Jane Smith (Smith) enrolled in a health insurance plan issued and administered by United HealthCare Insurance Company (United) and governed by ERISA. As alleged in the complaint, Smith had suffered from post-traumatic stress disorder and had received outpatient psychotherapy from a licensed clinical social worker since 2016. The social worker had a private practice and was out-of-network with United. Smith submitted her claims for payment to United, and United paid her provider according to its reimbursement schedule—which provided that the payment amount for her provider (a licensed social worker) would be reduced from the normal out-of-network rate by 35%. (Compl. ¶ 11.)

Smith filed a putative class action lawsuit against United and others to challenge the payment reduction, which she alleged was discriminatory. See Smith v. United HealthCare Insurance Company, et al., 4:18-CV-06336-HSG (N.D. Cal.). The putative class includes “all participants or beneficiaries in ERISA plans whose claim(s) for behavioral health services provided by out-of-network psychologists or master’s level counselors were subjected to United’s Discriminatory Reimbursement Penalty ….” (Compl. ¶ 45.) Smith asserted multiple causes of action for benefits under ERISA, 29 U.S.C. § 1132(a)(1)(B), based on alleged violations of the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (the Parity Act) and the Affordable Care Act (ACA).

The Parity Act

ERISA requires that claims administrators discharge their duties in the interests of participants and beneficiaries and in accordance with the written plan terms, unless those terms are inconsistent with ERISA’s provisions, including its anti-discrimination provisions. These provisions include the Parity Act and, according to Smith, Section 2706 of the Affordable Care Act (ACA).

The Parity Act, codified at 29 U.S.C. § 1185a, prohibits discrimination with respect to mental health and substance use disorder benefits. It requires any group health plan that “provides both medical and surgical benefits and mental health or substance use disorder benefits … [to] ensure that:

(i) the financial requirements applicable to such mental health or substance use disorder benefits are no more restrictive than the predominant financial requirements applied to substantially all medical and surgical benefits covered by the plan (or coverage), and there are no separate cost sharing requirements that are applicable only with respect to mental health or substance use disorder benefits [so-called quantitative treatment limitations, or QTLs]; and

(ii) the treatment limitations applicable to such mental health or substance use disorder benefits are no more restrictive than the predominant treatment limitations applied to substantially all medical and surgical benefits covered by the plan (or coverage) and there are no separate treatment limitations that are applicable only with respect to mental health or substance use disorder benefits [so-called non-quantitative treatment limitations, or NQTLs].”

29 U.S.C. § 1185a(3)(A)(i-ii).

Section 2706 of the ACA

Section 2706—titled “Non-discrimination in health care”—provides:

A group health plan and a health insurance issuer offering group or individual health insurance coverage shall not discriminate with respect to participation under the plan or coverage against any health care provider who is acting within the scope of that provider’s license or certification under applicable State law. This section shall not require that a group health plan or health insurance issuer contract with any health care provider willing to abide by the terms and conditions for participation established by the plan or issuer. Nothing in this section shall be construed as preventing a group health plan, a health insurance issuer, or the Secretary from establishing varying reimbursement rates based on quality or performance measures.

42 U.S.C. § 300gg-5.

United’s Policy

United’s coverage document states the following under the section titled “Eligible Expenses”:

When Covered Health Services are received from a non-Network provider, Eligible Expenses are determined, based on:

  • Negotiated rates agreed to by the non-Network provider and either us or one of our vendors, affiliates or subcontractors, at our discretion.
  • If rates have not been negotiated, then one of the following amounts:
    • Eligible Expenses are determined based on 110% of the published rates allowed by the Centers for Medicare and Medicaid Services (CMS) for Medicare for the same or similar service within the geographic market …;
    • When a rate is not published by CMS for the service, we use an available gap methodology to determine a rate for the service …;
    • For Mental Health Services and Substance Use Disorder Services the Eligible Expense will be reduced by 25% for Covered Health Services provided by a psychologist and by 35% for Covered Health Services provided by a masters level counselor.

(Compl. ¶ 17) (emphasis in original).

United’s Motion to Dismiss

United moved to dismiss Smith’s complaint. For the alleged violation of the Parity Act, United argued that Smith failed to plead facts that plausibly proved the elements of her parity claim. (Mot. p. 5.) United asserted that Smith could not simultaneously plead that the challenged reimbursement terms constituted a financial requirement and therefore were quantitative reimbursement provisions (QTLs), while at the same time arguing that they were non-quantitative reimbursement provisions (NQTLs). (See Mot. pp. 6-8.)

United also argued that Smith failed to identify any medical or surgical practice that was comparable to the challenged reimbursement terms and failed to allege that its policies were applied more stringently to mental health services than to a medical or surgical analogue. (Mot. pp. 8-10.)

As to the alleged violation of the ACA’s Section 2706, United argued that Smith lacked standing because the statute does not provide a private right of action. (Mot. pp. 10-12.)

Smith’s Opposition to United’s Motion

In opposing the motion, Smith argued that she had sufficiently pleaded facts to establish her parity claim. She argued that “only claims, [and] not legal theories or parts of claims, may be dismissed on a Rule 12 motion.” (Opp. p. 5.) Smith also highlighted that the Federal Rule of Civil Procedure “allows Plaintiff to plead alternative and even contradictory claims” and that “courts routinely permit alternative pleadings in ERISA cases.” (Opp. p. 6.)

Smith argued that she was permitted to plead alternative theories, including: (1) under the QTL theory (on the ground that reducing the reimbursement rates by 25-35% had the same outcome regardless whether “United cover[ed] only three out of four patient visits or covered each visit at 75% of the allowed rate”); and (2) the “financial requirement” theory (because United “cover[ed] less of [the] providers’ billed charges, which in turn increase[d] the ‘out-of-pocket expenses’ for the insured patient”). (Opp. p. 7.) Smith also argued that, at the pleading stage, a comparison to another medical or surgical practice that was comparable to the challenged reimbursement terms was not required, and that Smith had sufficiently identified United’s stringent methodology in calculating out-of-network mental benefits. (Opp. pp. 9-13.)

The Court’s Order

The Court granted in part and denied in part United’s motion.

1. QTL and Financial Requirement Theories

The Court first addressed United’s argument that “the challenged reimbursement terms [were] plainly an NQTL” and that “[Smith] [could not] ‘simultaneously or alternatively plead that [they] [were] also a financial requirement and QTL.’” (Order p. 6.) The Court agreed with Smith and held that she could “pursue alternative, and even possibly contradictory, theories of relief[,]” relying in part on Federal Rule of Civil Procedure 8(d)(2). (Order p. 6.) The Court also found that Smith’s claim did not fit only into the NQTL category and did not warrant the dismissal of the QTL or “financial requirement” theories.

Despite United’s assertion that Smith’s claim “[could] not be expressed numerically” and citation to regulations illustrating lists of NQTLs (including reimbursement rates), the Court found Smith’s arguments plausible at the pleading stage. (Order p. 7.) The Court held that “[t]he reduced reimbursement [was] ‘expressed numerically’ (either 25% or 35% less than the otherwise allowed rate) and thus plausibly qualifie[d] as a QTL.” Likewise, the Court held that United’s policy also constituted a “financial requirement” “because the effect of reduced reimbursements was increased ‘out-of-pocket expenses’ for [Smith].” (Order pp. 7-8.)

2. Comparable Practice

As to United’s assertion that Smith failed to identify any medical or surgical practice that was comparable to the challenged reimbursement terms, the Court again sided with Smith and held that she had “adequately alleged a Parity Act violation even without identifying a medical or surgical analogue.” (Order p. 10.) The Court declined to follow United’s cited authorities, finding that none of the cases “support[ed] so sweeping a rule as [United] suggest[ed].” (Order at 9.) Rather, the Court held that the showing of “reimbursement reductions to mental health and substance use disorder services only” was sufficient on a motion to dismiss. (Order at 9.) The Court further reasoned that asking for this information from Smith “may require her to plead facts ‘peculiarly within the possession and control of United[.]” (Order p. 9.) The Court also opined that it “would flout the plain text of the Parity Act if an insurer could pay providers of mental health services less simply because they are providers of mental health services.” (Order p. 9.)

3. Stringency

Similar to the analysis on comparable practices, the Court held that Smith did not need to identify a medical or surgical analogue, at least on a motion to dismiss. (Order at 10.) Because Smith had pleaded that only mental health services were subject to reimbursement reductions, her “allegations of categorical disparate treatment [were] sufficient to state a claim for a Parity Act violation.” (Order p. 10 (emphasis added).) The Court thus held that Smith had sufficiently pleaded her Parity Act claim and denied United’s motion to dismiss with respect to this claim.

4. Section 2706

The Court also addressed and granted United’s motion to dismiss Smith’s nondiscrimination claim under Section 2706 of the ACA. The Court agreed with United that “enforcement authority is vested with the Secretary of Health and Human Services.” (Order p. 11 (quoting 42 U.S.C. § 300gg-22(a)(2)).) Relying on precedent from other circuits, the Court further rejected Smith’s assertion that she had indirect standing through an ERISA claim for benefits (29 U.S.C. § 1132(a)(1)(B)) or for equitable relief (id. § 1132(a)(3)(A)) and rejected her standing argument altogether.


This ruling could make it easier for a plaintiff alleging violations of the Parity Act under the NQTL theory to advance alternative claims under additional theories, such as the QTL and financial requirement theories—and all based on very little showing at the motion to dismiss stage. Moreover, if the Court’s ruling is followed by other courts, allegations that challenge reimbursement terms for mental health treatment only are likely to survive a motion to dismiss. As the Court held, showing of “reimbursement reductions to mental health and substance use disorder services only” is sufficient. (Order p. 9 (emphasis added).)

In sum, the ruling may make it easier for alternative theories based on thin allegations to proceed to the class certification stage—and may inspire a fresh wave of ERISA class actions.



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