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Natalie V. v. Health Care Service Corp.

United States District Court, N.D. Illinois, Eastern Division

September 13, 2016

NATALIE V., Plaintiff,


          Honorable Edmond E. Chang United States District Judge.

         Natalie V. brings this action against Health Care Service Corporation (HCSC) under the Employee Retirement Income Security Act of 1974 (ERISA), seeking benefits related to her mental health treatment at a residential treatment center.[1] R. 1, Compl.[2] HCSC refused to pay for Natalie V.'s treatment because her group health plan excluded coverage for residential treatment centers. Id. ¶¶ 10, 12-13. Natalie V. now asserts that this exclusion violated the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (the Parity Act), which generally requires group health insurance plans to provide parity between mental health benefits and medical/surgical benefits. Id. ¶¶ 1, 11. HCSC now moves to dismiss the action under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. R. 18, Mot. to Dismiss. For the reasons stated below, the motion to dismiss is denied.

         I. Background

         For purposes of this motion, the Court accepts as true the factual allegations in Natalie V.'s complaint. Erickson v. Pardus, 551 U.S. 89, 94 (2007). Natalie V. is a 23-year-old Illinoisan who suffers from anorexia nervosa, general anxiety disorder, and major depressive disorder. Compl. ¶¶ 2, 6. In mid-2014, Natalie V. spent about three months at a residential treatment center in California to treat these disorders. Id. ¶¶ 7, 9. Although Natalie V. paid for her treatment upfront, she promptly submitted claims for reimbursement to HCSC. Id. ¶¶ 8, 9.

         HCSC denied Natalie V.'s claims for the entirety of her treatment. Compl. ¶ 10. Natalie V.'s group health plan (call it “the Plan, ” for short) only covered treatment at residential treatment centers[3] for substance use disorders, not for mental illness:

Expenses for the following are not covered under your benefit program:
- Residential Treatment Centers, except for Inpatient Substance Use Disorders as specifically mentioned in this benefit booklet.

         R. 18-1, Exh. 1 at 66-68, Health Care Service Corp. Health Care Benefit Program at 53-55.

         After HCSC relied on the exclusion to reject coverage, Natalie V. appealed the denial, asserting that the Parity Act required the Plan “to cover [her] residential treatment as it would for treatment of any physical illness.” Compl. ¶ 11. But again HCSC refused to pay for Natalie V.'s treatment on the grounds that the Plan excluded residential treatment for mental illness. Id. ¶ 12. After exhausting all administrative remedies (as required under ERISA), Natalie V. brought this action against HCSC. Id. ¶ 15. Natalie V. alleges that HCSC violated the Parity Act, which requires parity between mental health and medical/surgical benefits, by denying her claims for inpatient residential mental health treatment. Id. ¶ 13. Natalie requests relief for all past benefits due to her under the Plan, plus pre-judgment and post-judgment interest, as well as the costs and attorney's fees spent on this case. Id. at ¶¶ 17, 20.

         II. Standard of Review

         Under Federal Rule of Civil Procedure 8(a)(2), a complaint generally need only include “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). This short and plain statement must “give the defendant fair notice of what the … claim is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (alteration in original) (internal quotation marks and citation omitted). The Seventh Circuit has explained that this rule “reflects a liberal notice pleading regime, which is intended to ‘focus litigation on the merits of a claim' rather than on technicalities that might keep plaintiffs out of court.” Brooks v. Ross, 578 F.3d 574, 580 (7th Cir. 2009) (quoting Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514 (2002)).

         “A motion under Rule 12(b)(6) challenges the sufficiency of the complaint to state a claim upon which relief may be granted.” Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). “[A] complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). These allegations “must be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555. The allegations that are entitled to the assumption of truth are those that are factual, rather than mere legal conclusions. Iqbal, 556 U.S. at 678-79.

         III. Analysis

         This motion to dismiss boils down to one issue: whether the Parity Act required HCSC to cover Natalie V.'s residential treatment for her mental disorders. Analyzing this issue requires a bit of background on the Parity Act and the two sets of regulations-the “Interim Final Rules” (an oxymoron if there ever was one) and the Final Rules-that were issued to provide guidance to health insurance companies (like HCSC) on how to comply with the Parity Act. The next section summarizes the Parity Act, the Interim Final Rules, and the Final Rules, see Section III.A., and then the Opinion moves onto analyzing whether Natalie V. has adequately stated a claim for relief, see Section III.B.

         A. The Parity Act

         In an effort to increase the scope of coverage for mental illness treatment, Congress passed the Mental Health Parity Act in 1996. Pub. L. No. 104-204, 110 Stat. 2874 (1996); Coal. for Parity, Inc. v. Sebelius, 709 F.Supp.2d 10, 13 (D.D.C. 2010). The Act required group health plans to provide the same aggregate lifetime and annual dollar limits for mental health benefits and medical/surgical benefits. Mental Health Parity Act of 1996 § 712.

         Twelve years later, Congress passed the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008, which imposed additional parity requirements on group health plans. Pub. L. No. 110-343, 122 Stat. 3765 (2008) (codified as 29 U.S.C. § 1185a (ERISA); 42 U.S.C. § 300gg-5 (Public Health Service Act); and 26 U.S.C. § 9812 (Internal Revenue Code)). One important way that the Parity Act seeks to achieve parity is to mandate parity between the “treatment limitations” placed on mental health benefits and on medical/surgical benefits:

In the case of a group health plan … that provides both medical and surgical benefits and mental health or substance use disorder benefits, [4] such plan or coverage shall ensure that-
(ii) the treatment limitations applicable to such mental health or substance use disorder benefits are no more restrictive than the predominant[5] treatment limitations applied to substantially all medical and surgical benefits covered by the plan … and there are no separate treatment limitations that are applicable only with respect to mental health or substance use disorder benefits.

29 U.S.C. § 1185a(a)(3)(A)(ii) (emphases added).[6] The Parity Act goes on to define “treatment limitation” by referring to the scope and duration of treatment. Specifically, treatment limitation “includes limits on the frequency of treatment, number of visits, days of coverage, or other similar limits on the scope or duration of treatment.” Id. § 1185a(a)(3)(B)(iii).

         The Parity Act instructed the Secretaries of Labor, Health and Human Services, and Treasury (for convenience's sake, the “Departments”) to issue “guidance and information” on the Parity Act's requirements. 29 U.S.C. § 1185a(g). Congress directed, however, that the Act would apply to all plans beginning on or after October 3, 2009, and Congress did not provide for a delay of the Parity Act even if the Departments had not yet issued the rules. Pub. L. No. 110-343, 122 Stat. 3765 (2008) (codified as 42 U.S.C. § 300gg-5 (“The amendments made by this section shall apply with respect to group health plans for plan years beginning after the date that is 1 year after the date of enactment of this Act [October 3, 2008] … .”); see also Preamble, Interim Final Rules Under the Parity Act, 75 Fed. Reg. 5410-01, 5411 (Feb. 2, 2010) (“The changes made by [the Parity Act] are generally effective for plan years beginning after October 3, 2009.”); 29 C.F.R. § 2590.712 (amended Jan. 13, 2014).[7]

         1. Interim Final Rules

         In February 2010, four months after the Parity Act took effect, the Departments published the Interim Final Rules (IFRs). Preamble, IFRs, 75 Fed. Reg. 5410-01; 29 C.F.R. § 2590.712. The IFRs applied to “plan years beginning on or after July 1, 2010, ” Preamble, IFRs, 75 Fed. Reg. at 5410, and remained in effect until the Departments published the Final Rules in July 2014, see Preamble, Final Rules Under the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (hereinafter “Final Rules”), 78 Fed. Reg. 68240-01 (Nov. 13, 2013); 29 C.F.R. § 2590.712(i).

         The IFRs addressed the requirements for achieving parity of treatment limitations. Specifically, the IFRs explained that “the parity requirements for … treatment limitations are applied on a classification-by-classification basis.” Preamble, IFRs, 75 Fed. Reg. at 5412. As a premise for the classification-by-classification regulation, the IFRs established six “classifications of benefits” for purposes of Parity Act compliance: (1) inpatient, in-network; (2) inpatient, out-of-network; (3) outpatient, in-network; (4) outpatient, out-of-network; (5) emergency care; and (6) prescription drugs. 29 C.F.R. § 2590.712(c)(2)(ii)(A); Preamble, IFRs, 75 Fed. Reg. at 5413. The Departments chose these classifications after observing that many plans already varied treatment limitations “based on whether a treatment is provided on an inpatient, outpatient, or emergency basis; whether a provider is a member of the plan's network; or whether the benefit is specifically for a prescription drug.” Preamble, IFRs, 75 ...

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