On March 1, 2018, in Ariana M. v. Humana Health Plan of Tex., Inc., 2018 WL 1096980 (5th Cir. 2018), the U.S. Court of Appeals for the Fifth Circuit issued a landmark decision, changing how the court will review cases involving ERISA claims.
As background, there are generally two standards of review for ERISA benefit cases: de novo and deferential. With a de novo standard of review, the court examines the plan document and evidence to render a decision on merit. In contrast, a deferential standard of review gives preferential treatment to the plan administrator's decision. The court examines the plan administrator's decision to see if it's supported by substantial evidence and confirm it wasn't an abuse of discretionary authority. Under deferential treatment, a plan administrator's decision could be upheld even if it's technically in contradiction to the plan language, as long as it's supported by reasonable evidence and wasn't capricious or arbitrary.
The Fifth Circuit had previously used the de novo standard of review only for cases that involved issues of plan interpretation. If the case involved a factual determination (such as medical necessity), the court used the deferential standard regardless of whether the plan administrator had reserved discretionary authority in the plan document. This was based on prior precedent established over 25 years ago.
Other circuit courts already use the de novo standard for both factual determinations and plan interpretations if the plan administrator doesn't reserve discretionary authority or if the discretionary clause is unenforceable under state law. The Fifth Circuit will now decide cases applying the same standard as the other circuit courts.
At issue in this case was whether a participant's partial hospitalization was medically necessary as treatment for an eating disorder. The insurer had approved such treatment for a period of time and then denied continued hospitalization, ruling that it was no longer medically necessary for the patient. The district court reviewed the case using the deferential standard, as it involved a factual determination, not plan interpretation. The district court ruled that the plan hadn't abused its authority and thus ruled in favor of the plan. The participant appealed to the Fifth Circuit, which has now sent the case back to the district court to be reviewed using the de novo standard.
While this case is a bit technical in its facts, it serves as an important reminder for employer plan sponsors to carefully draft plan language with outside counsel, reserving discretionary authority for the plan administrator, where appropriate. Self-insured employers should also take care in establishing internal appeal procedures, including a reasonable review of appealed claims, in light of plan language.
Ariana M. v. Humana Health Plan of Tex., Inc. »