Benefits

Benefits Litigation: Humana Case May Point to Oncoming Wave

Things are happening, and they portend an explosion of benefits litigation. Yes, this once-sleepy corner of the employment law forest is buzzing with news, and it came on March 1 from our very own U.S. 5th Circuit Court of Appeals—which covers Louisiana, Mississippi, and Texas—in an en banc decision, which means all the appeals court judges heard the case.

Stethoscope over the dollar bills.

It Starts

Ariana is a teenager. One of her parents works for EyeSys Vision, Inc. As a result, Ariana is covered by the company’s medical insurance, which is provided by Humana Health Plan of Texas.

Sadly, Ariana suffers from eating disorders and was hospitalized. When she was admitted to the hospital, she had more than 100 self-inflicted cuts. She claimed that her body image dissatisfaction dated to early childhood. The hospitalization was partial—that is, Ariana did not need full-time care.

Beneficiaries are eligible for partial hospitalization for mental health services only if the treatment is medically necessary. How did the Humana plan define “medically necessary”?

Here goes: “‘Medically necessary’ is defined as health care services that a health care practitioner exercising prudent clinical judgment would provide to his or her patient for the purpose of preventing, evaluating, diagnosing or treating an illness or bodily injury, or its symptoms.”

Humana concluded that Ariana’s treatment did not fall within that definition and denied benefits. (It had earlier provided benefits but changed its mind.) Ariana appealed the decision to the plan administrator.

It Continues

Important side note: The Humana plan was governed by the federal Employee Retirement Income Security Act (ERISA), which is quite the misnomer. ERISA requires a person denied benefits to first appeal the denial to the plan administrator. Well, guess what happens? That’s right: Most appeals are denied, as was Ariana’s. But why?

The U.S. Supreme Court has said it is A-OK for a plan to vest the administrator with the authority to interpret the plan pretty much any way he elects. The Humana plan had such a provision, which is called a delegation clause. Yes, a disappointed benefit seeker can appeal the administrator’s decision to a federal court.

However, the court says, “Hey, I have to defer to the wise judgment of the plan administrator on the facts. Sure, I can set aside the administrator’s decision if it is legally incorrect (that’s called de novo review), but I must defer to his factual determinations. And if the administrator is right on the facts, then he is usually right on the law.”

Texas Gets Involved

Last year, the Texas Legislature voted to outlaw delegation clauses. If a delegation clause goes “poof,” then what becomes of the standard of review in federal court? The factual record is reviewed de novo—that is, with a clean slate.

In other words, discovery (the pretrial exchange of evidence) can be conducted in an appeal to a federal court. The record before the administrator is subject to being expanded. In short, there is a whole new trial as though the administrator never made a decision (although the 5th Circuit declined to go that far in Ariana’s case). Ariana M. v. Humana Health Plan of Texas, Inc. (5th Cir., 2018) (en banc).

Bottom Line

The court recognized that a lot more ERISA cases will be filed. The court did not rule on whether the Texas statute is valid, although it noted that every court that has looked at similar laws has upheld the statutes. The formula: de novo review of the law + de novo review of the facts = lots more ERISA litigation.

Michael P. Maslanka is an editor of Texas Employment Law Letter and can be reached at Michael.Maslanka@FisherBroyles.com.