On July 24, 2020, in Lyn M v. Premera Blue Cross, et al., the US Court of Appeals for the Tenth Circuit (the “Tenth Circuit”) ruled that an ERISA group health plan administrator was not entitled to a discretionary standard of review because this standard was not adequately disclosed to plan participants. The Tenth Circuit further held that the plan administrator had failed to refer to the applicable medical policy when evaluating the appealed medical claim at issue.
As background, an ERISA plan’s benefit determinations are entitled to a favorable standard of review, known as the arbitrary and capricious standard, if there is language in the plan document granting the plan administrator discretion to interpret the plan and make benefit determinations. This standard involves a more limited judicial review of participant challenges to plan benefit determinations and often results in the disposal of cases at an early stage in the legal process. Absent such language in the plan document, de novo review applies, and the trial court would typically conduct a more independent and thorough review of a participant’s claim.
In Premera, parents sought medical benefits under the Microsoft Corporation Welfare Plan for their minor child’s psychiatric treatment. The claims administrator, Premera, denied the claim and subsequent appeal as not medically necessary based upon the definition of “medical necessity” in the SPD, rather than the more comprehensive definition in the medical policy.
The district court reviewed Premera’s denial of the appealed claim under the arbitrary and capricious standard because the plan language gave the claims administrator discretionary authority to interpret and administer the plan. Under this standard, the court deferred to the administrator’s determination that the disputed services were not medically necessary, and ruled in favor of Premera and the plan fiduciary, Microsoft Corporation.
On appeal, the Tenth Circuit reversed the district court decision and held that the discretionary standard of review was not applicable because participants had not been notified of this more limited scope of judicial review of their claims. In other words, the plan administrator had not specifically disclosed its discretionary authority in the SPD or other distributed materials or the existence of a document with information about such discretionary authority. Additionally, the Tenth Circuit found that Premera erred in failing to consider the definition of medical necessity in the medical policy.
Accordingly, the case was returned to the district court for review of the claim under the de novo standard of review, thus allowing for a broader judicial analysis of the evidence without deference to the plan administrator’s benefit determinations.
ERISA plan sponsors, particularly those within the Tenth Circuit’s jurisdiction, should be aware of this development. The Tenth Circuit includes districts in Colorado, Kansas, New Mexico, Oklahoma, Utah and Wyoming. Sponsors seeking to benefit from the application of the discretionary standard of review in the event of litigation should consider referencing this standard in the SPD in addition to the plan document. Furthermore, employers should recognize their obligation as plan fiduciaries to oversee claims administrators and ensure their claim review processes and communications adhere to ERISA requirements and the specific plan terms. Plan document providers and/or counsel should be consulted for further assistance.
Source: NFP BenefitsPartners