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The ERISA Edit: Supreme Court Denies Review in ERISA Remedies Case

Employee Benefits Alert

Fourth Circuit's Rejection of Surcharge as Equitable Remedy Available to ERISA Plaintiffs Left to Stand

On Monday, April 15, 2024, the U.S. Supreme Court denied a petition for a writ of certiorari in Rose v. PSA Airlines, Inc., Case No. 23-734, a case raising the issue of whether make-whole relief or "surcharge" constitutes "appropriate equitable relief" under ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3). As we previously discussed, a divided panel of the U.S. Court of Appeals for the Fourth Circuit, in a lengthy and scholarly decision issued in September 2023, declined to follow the Supreme Court's "suggest[ion]" in CIGNA Corp. v Amara, U.S. 421 (2011), that certain plaintiffs might be permitted to pursue make-whole, loss-based monetary relief under § 502(a)(3) because such relief was analogous to surcharge. In Rose, the Fourth Circuit rejected this part of Amara as dicta, which it stated the Supreme Court acknowledged in its subsequent decision Montanile v. Board of Trustees of the Nat'l Elevator Indus. Health Benefits Plan, 577 U.S. 136 (2016). The Fourth Circuit set aside its own precedent that had relied on Amara and held that compensatory, make-whole monetary relief is not available under § 502(a)(3). The Fourth Circuit further concluded that "a plaintiff alleging unjust enrichment can get a monetary remedy under ERISA" but "only if she seeks specific funds that are wrongfully in the defendant's possession and rightfully belong to her." 

The complaint in Rose was filed by the estate of a deceased employee of the defendant airline seeking to recover under ERISA for the value of "benefits" that were denied under the decedent's plan. The district and appellate courts both held that the money sought in the lawsuit was not a "benefit" that could be recovered under the terms of the plan, causing both courts to evaluate whether ERISA's "catch-all" § 502(a)(3) remedial provision allowed for the type of relief requested. The Fourth Circuit's ruling affirmed the district court's holding that it did not. 

With the Supreme Court's denial of certiorari in Rose, the Fourth Circuit's decision undermining the import of Amara is likely to play a significant role when other circuit courts are inevitably called upon in the future to evaluate or reevaluate the availability of make-whole relief under ERISA. Six other federal circuits (the Second, Fifth, Seventh, Eighth, Ninth, and Eleventh) have recognized surcharge as an equitable remedy available in ERISA cases following Amara. Parties in ERISA cases have sought to recover interest, out-of-pocket expenditures, lost wages, and fees and penalties paid, among other things, under a surcharge remedy. 

Ninth Circuit Articulates MHPAEA Pleading Standards and Revives Claims Based on Allegedly Flawed Claims-Review Processes for Mental Health Treatments

On April 11, 2024, the U.S. District Court for the Ninth Circuit revived a putative class action challenging the review processes that UnitedHealthcare (UHC), as plan administrator, applies to claims for mental health and substance abuse disorder (MH/SUD) benefits. The named plaintiff, known by the pseudonym Ryan S., alleged that UHC violated the Mental Health Parity and Addiction Equity Act of 2008 (Parity Act or MHPAEA) when it applied a more stringent review process to his outpatient, out-of-network substance abuse disorder treatment claims than it would have to outpatient, out-of-network claims for medical/surgical treatments. The district court granted UHC's motion to dismiss, concluding that Ryan S. had failed to plausibly allege that UHC implemented improper internal processes. 

On appeal, a three-judge panel of the Ninth Circuit reversed, finding that the district court's pleading standard was too stringent and that Ryan S. had plausibly alleged violations of MHPAEA. Although the panel acknowledged that the pleading standards for such claims are not at all clear, it took issue with the district court's apparent requirement that Ryan S. show either a "categorical" denial of benefits for claims like his, or disparate treatment of his particular claim in comparison to comparable medical/surgical claims. Those two pleading standards may make sense where a MHPAEA claim alleges facial discrimination against MH/SUD treatments or discriminatory application of facially neutral plan terms, the panel opined, but not when it comes to a third category of MHPAEA claims – i.e., those alleging that a plan administrator applies more restrictive internal review processes to MH/SUD benefits than to medical/surgical benefits. According to the panel, the plausibility of MHPAEA claims should reflect the specific violation alleged because, otherwise, "[a]ttempts to craft and apply a rigid multi-prong test that applies to all three [types of MHPAEA violations] can lead to the erroneous dismissal of potentially meritorious Parity Act claims."

In a case like Ryan S.'s, then, the plaintiff must "plausibly allege the existence of a procedure used in assessing MH/SUD benefit claims that is more restrictive than those used in assessing some other claims under the same classification." The panel emphasized that a plaintiff need not identify the comparable medical/surgical claims with any more specificity than their classification under DOL regulations — here, outpatient, out-of-network benefits. Additionally, a plaintiff need not identify the more lenient process used for medical/surgical claims, as they would often not have the ability to access to such information. Rather, the panel concluded that a well-pleaded complaint must only "provide some reason to believe that the denial of MH/SUD claims was impacted by a process that does not apply to medical/surgical claims."

The panel found that Ryan S.'s complaint met the newly articulated pleading standard, because it provided good reason to believe that UHC had utilized improper processes. The complaint cited a California state agency report finding that UHC did indeed process MH/SUD claims differently than it did medical/surgical claims. The panel concluded that the report, combined with multiple denials of Ryan S.'s own claims, was sufficient to raise an inference that MH/SUD benefits were subject to additional scrutiny by UHC. 

In addition to reviving Ryan S.'s MHPAEA claim, the panel also reversed the dismissal of his fiduciary breach claims, holding that the alleged MHPAEA violation could itself constitute a breach of fiduciary duty. The panel did not, however, overturn the dismissal of his claim for breach of plan terms, agreeing with the district court that Ryan S. had not identified any specific plan terms that were violated. This is the second time the case will be remanded to the district court — an earlier Ninth Circuit opinion reversed a decision finding that Ryan S. lacked standing.

New Notice and FAQs Addressing Essential Health Benefit Drug Coverage

On April 2, 2024, the U.S. Department of Health and Human Services (HHS) released the final Notice of Benefit and Payment Parameters for 2025 (2025 NBPP). Among the many topics addressed in the notice, HHS articulated its policy that if a health plan or issuer covers prescription drugs in excess of essential health benefit (EHB) requirements, the additional drug coverage would nonetheless be considered EHBs for purposes of the Affordable Care Act's (ACA) prohibition on annual and lifetime benefits and annual maximum out-of-pocket limit. HHS indicated that the policy covers non-grandfathered individual and small group market coverage. In the preamble to the 2025 NBPP, HHS stated that "[t]his final rule does not address the application of this policy to large group market health plans and self-insured group health plans."

Also on April 2, HHS, together with the Departments of Labor (DOL) and the Treasury (collectively, the Departments), issued FAQ about Affordable Care Act Implementation Part 66 stating that "[a]fter consideration of comments on the proposed 2025 NBPP, HHS is finalizing the amendment to 45 CFR 156.122 in the final [2025 NBPP] with respect to issuers of non-grandfathered individual and small group market plans that are subject to the requirement to provide EHB." The Frequently Asked Question (FAQ) also states that the Departments intend to undertake future rulemaking: 

that would align the standards applicable to large group market health plans and self-insured group health plans with those applicable to individual and small group market plans, so that all group health plans and health insurance coverage subject to sections 2711 and 2707(b) of the PHS Act, as applicable, would be required to treat prescription drugs covered by the plan or coverage in excess of the applicable EHB-benchmark plan as EHB for purposes of the prohibition of lifetime and annual limits and the annual limitation on cost sharing. (emphasis added)

These statements in the FAQ together with preamble to the 2025 NBPP indicate that the newly articulated EHB drug policy does not currently apply to large group market and self-funded plans. The Departments did not indicate their timeline for the rulemaking aligning the policy to these plans.

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