By Jonathan A. Braunstein and Michael W. Stevens

Seyfarth Synopsis: The Fourth Circuit found that the medical necessity of a given service constitutes a material element of representations regarding submissions for payment, potentially providing payors with another legal authority to fight health care fraud.

The Fourth Circuit recently affirmed two criminal convictions for health care fraud under 18 U.S.C. §§  1347 and 1349, finding that a misrepresentation as to the medical necessity of the service rendered was material for purposes of violating the statute. United States v. Palin, — F.3d —-, No. 16-4522, 2017 WL 4871381 (4th Cir. Oct. 30, 2017).

The two defendants operated an addiction medicine clinic and laboratory, which frequently processed urine tests. There were two kinds of urine tests, a simpler, less-expensive test and a more complicated, more expensive one.  When submitting lab orders, doctors would usually not specify which test they intended.  Generally, where patients were uninsured, the defendants would use the cheaper test, but where patients were insured, the defendants would use the more expensive test.

The district court convicted the defendants, finding that by this course of conduct, defendants “knowingly and willfully executed a scheme to defraud health care benefit programs” in violation of the health care fraud statute.

Defendants appealed, asserting that the district court erred in its analysis of materiality of the misrepresentation. Defendants asserted that there was no material misrepresentation, because they did not misrepresent to payors either the type of test they billed for or the frequency of the tests. See id. at *2.  Defendants impliedly argued that because they billed for services actually rendered, and told the payors which services were rendered, no fraud occurred.

The Fourth Circuit rejected defendants’ arguments, finding that “materiality looks to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation” Id. at *3 (citations omitted).

The Court found that “the misrepresentations here were material: insurers would not have paid for the sophisticated tests had they known those tests were unnecessary. . . . [T]he insurers here did not reimburse claims despite knowing [defendants] sought payment for tests that [defendants] knew were not medically necessary. . . . No evidence even suggests that medical necessity was anything less than a critical prerequisite to payment.” Id. (emphasis added).  The Fourth Circuit proceeded to reject defendants’ other arguments against their convictions.

Palin represents an important arrow in the quiver for payors alleging that billing payors for medically unnecessary services constitutes health care fraud.  Although this case involved a criminal conviction for fraudulently billing private insurers, the facts potentially apply equally to civil actions and disputes involving other payors, including ERISA Plans.  Stay tuned to this blog for further legal developments in health care fraud and provider billing litigation.

By: Chris Busey and Ron Kramer

Even when a claims administrator approves a claim for disability benefits, its job is not done. That principle was again demonstrated in the recent case Owings v. United of Omaha Life Insurance Co., No. 16-3128 (10th Cir. Oct. 17, 2017). The plaintiff’s claim for long-term disability benefits had been approved, but he claimed that the benefits paid were based on the wrong salary.

The plaintiff injured his back at work on July 1, 2013. Later that same day, the plaintiff was demoted from manager to supervisor with a corresponding reduction in his salary. The plaintiff returned home that day and claimed that he did not return to work the following day due to his back pain. The claims administrator approved and paid long-term disability due to plaintiff’s back injury, but based the amount on his reduced salary. It relied on the employer’s human resources representative, who said that plaintiff worked on July 2, making his date of disability at July 3. Plaintiff filed a claim seeking increased benefits based on his prior claim and appealed the denial. The defendant again relied on the employer’s human resources department in determining that the plaintiff worked on July 2, thus making his pay at the time of his disability the lower amount. After plaintiff filed suit in Kansas state court, the case was removed to the U.S. District Court for the District of Kansas. That court ruled in the defendant’s favoring, determining that it did not abuse its discretion in denying plaintiff’s claim.

On appeal, the Tenth Circuit overturned that decision, determining that the insurer abused its discretion in several ways. First, it held that the defendant’s interpretation of “disabled” under the plan was unreasonable. The defendant had determined that plaintiff’s disability did not begin until July 3 because he continued to perform at least one job duty on July 2. The plan, however, defined disability as being unable to perform “at least one of the Material Duties of Your Regular Occupation.” The defendant’s interpretation was thus inconsistent with plan’s terms. The Court also rejected the defendant’s argument that plaintiff was disabled, at the earliest, on July 2 because he worked at least part of July 1. The Court noted that the plan did not support the defendant’s interpretation that the date of disability must be difference than a claimant’s last day worked. This interpretation was unreasonable in light of the plan’s plain language. Finally, the Court found it unreasonable for the defendant to rely solely on the assertions of the employer’s human resources director in determining that last day worked. The defendant was focused solely on whether plaintiff worked on a specific day, and not on when plaintiff’s injury sustained on July 1 prevented him from performing one or more of the duties of his position. The Court remanded the case to the lower court with instructions to enter judgment for the plaintiff.

This case presents a few key takeaways. As always, the plan terms and, in particular, the plan’s definition of disability, must always be at the forefront of any benefits decision. The more unexpected result is the Court’s finding that a claimant’s last day worked and date of disability may be the same. This defies the typical interpretation many administrators use where the date of disability follows the last day worked. While the Court relied on the specific plan language at issue in making that determination it is noteworthy for claims administrators going forward. Further, the Court found it was unreasonable for the administrator to rely on the employer’s assertions alone. This case thus serves as a reminder to conduct an independent investigation.

 

By Amanda Sonneborn, Megan Troy, and Tom Horan

Seyfarth Synopsis: Since August 2016, sixteen elite colleges and universities have faced class action lawsuits related to management of their retirement plans. After five cases previously survived motions to dismiss, the University of Pennsylvania became the first college to secure a complete victory when accused of retirement plan mismanagement.

On September 21, 2017, the Eastern District of Pennsylvania ruled in favor of the University of Pennsylvania on every count in a proposed class action, which challenged the school’s retirement plan fees, investment lineup, and use of multiple plan record keepers. The proposed class action specifically alleged that both Penn and the administrator of its defined contribution retirement plan breached their fiduciary duty by “locking in” participants’ options to two investment companies, allowed the plan to pay too much in administrative fees, and charged excessive investment fees for access to an underperforming portfolio.

Citing Renfro v. Unisys Corp., 671 F.3d 314 (3d Cir. 2011), the court rejected the claim that by “locking in” arrangements with two investment companies, the plan fiduciaries’ imprudently failed to monitor the investment options offered to participants. Specifically, the court found that plaintiffs’ claims amounted to impermissible second-guessing of the fiduciaries’ investment decisions just because they turned out to lose money. The court noted that, standing alone, the decision to “lock in” arrangements with investment companies is not imprudent. The court likened locking a plan into an arrangement with an investment company for a stated period to cell phone companies offering discounted rates in exchange for two-year contracts, and found that plans are often able to obtain favorable terms in exchange for committing to providing a predictable period of business to investment companies.

The court found that plaintiffs’ administrative fee claims failed because there are lawful explanations for not offering the absolute lowest-available fees to participants. In dismissing these claims, the court stated: “the plaintiffs need something more than a claim that there may be (or even are) cheaper options available. The plaintiffs must show that there were no reasonable alternatives given to plan participants to choose from, which the plaintiffs have not pled.”

Similarly, with respect to the unreasonable investment management fees claim, the court stated: “The plaintiffs’ argument that fiduciaries must maintain a myopic focus on the singular goal of lower fees was soundly rejected in Renfro.” Plaintiffs also argued that, by offering too many investment options, there was participant confusion. Because they failed to point to a single participant that was confused by the investment options, however, the court dismissed the claim. The court also found no cause of action for plaintiffs’ claims that certain funds were outperformed in the market.

The Court characterized plaintiffs’ prohibited transaction claims as an impermissible attempt to shoehorn their fiduciary breach claims into prohibited transaction rules. The court found that accepting plaintiffs’ arguments would mean that administrators commit prohibited transactions every time they contract with a party to provide services to a plan for money, and dismissed the claims because there was no evidence of an intent to benefit parties at participants’ expense.

This decision is a significant victory for the University of Pennsylvania and a change in course for the cases against colleges and universities. The Court’s reliance on Renfro requires plaintiffs in these cases to do more than second-guess fiduciary decisions where they lose money, and instead holds them to the burden to plausibly allege systematic mismanagement that left participants with a choice between participating in a poorly-performing retirement plan or no plan at all.  It remains to be seen whether the impact of Renfro will be limited to the Third Circuit or whether it will expand to other circuits as well.

 

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By Jonathan A. Braunstein and Michael W. Stevens

Seyfarth Synopsis: The Ninth Circuit Court of Appeals recently confirmed that ERISA preempts state insurance law bans on discretionary clauses  for self-funded ERISA plans.

The Ninth Circuit has weighed into the national debate over discretionary clauses in ERISA plans, holding that ERISA preempts a state-law ban on discretionary clauses for self-funded disability plans, but not for fully-insured plans. Williby v. Aetna Life Ins. Co., No. 15-56394, Aug. 15, 2019 (9th Cir.).

In Williby, an employee of The Boeing Company sought disability benefits.  Boeing provided its employees with a self-funded short-term disability program, administered by Aetna.  The plan included a so-called discretionary clause, providing Aetna with “full discretionary authority to determine all questions that may arise,” including determination of benefits eligibility and scope.  Discretionary clauses effectively make an administrator’s determinations subject to a higher standard of review (abuse of discretion), rather than a de novo review.

The employee sought short-term disability benefits, which Aetna granted in part but denied in part. The employee then sued, accusing Aetna of wrongful denial.  The trial court reviewed Aetna’s determination de novo, finding in part that Cal. Ins. Code § 10110.6 — a ban on discretionary clauses in life or disability insurance — prohibited application of a more stringent standard of review. The trial court then held that plaintiff was entitled to more benefits than what Aetna had originally granted. Aetna appealed.

The Ninth Circuit reversed and remanded. The Court ruled that ERISA preempted § 10110.6, as applied to the self-funded plan at issue. The Ninth Circuit focused its analysis on the difference between a fully-insured and a self-funded benefit plan.  The Court held that there “is a simple, bright-line rule: if a plan is insured, a State may regulate it indirectly through regulation of its insurer and its insurer’s insurance contracts; if the plan is uninsured, the State may not regulate it. . . . Thus, for a self-funded disability plan like Boeing’s, the saving clause does not apply, and state insurance regulations operating on such a self-funded plan are preempted.”

The Court then held that, because § 10110.6 was preempted, Aetna’s decisions were entitled to an abuse of discretion standard, and remanded for further proceedings.

Thus, while the national battle over the force of state discretionary clause bans continues to be fought, self-funded plans in the Ninth Circuit can point to Williby as setting a clear and bright line limit on the interplay of state insurance regulations and ERISA. In the coming years,   we expect to see many more cases presenting ERISA preemption issues in the near future, as it remains a very hot-button and heavily litigated issue.  Stay tuned to this blog for further updates.

 

 

By: Jules Levenson and Mark Casciari

Seyfarth Synopsis: A district court in New York has held that a plaintiff cannot assert claims against a plan in which she did not participate and cannot assert claims of fiduciary breach without plausible allegations of wrongdoing.

A federal district judge in the Southern District of New York has dismissed claims that a stable value fund was depressing returns and pocketing the difference between the amount credited to the investments and the actual return on the investments. The decision is reported as Dezelan v. Voya Retirement Ins. & Annuity Co., No. 16-cv-1251 (S.D.N.Y. July 6, 2017).

The plaintiff participated in a separate-account stable value fund (with money segregated from Voya’s general accounts).  She sued on behalf of a class of participants in all of Voya’s ERISA-covered stable value funds in a multitude of employer-sponsored plans, including participants in non-segregated funds. The suit alleged that Voya violated its fiduciary duties and engaged in prohibited transactions by skimming money from the investments rather than allowing it to accrue to the plans.

Voya filed a motion to dismiss, which the Court granted without prejudice. On the general account claims, the court found that the plaintiff did not have standing to attack alleged violations in the general account funds because the she did not participate in the funds, and thus  had no redressable injury.  It also rejected plaintiff’s claims as to separate account plans because the claims turned on a showing that Voya improperly transferred assets between its segregated and general accounts. The Court lastly rejected holdings from other circuits that an ERISA participant may represent participants in other plans if the “gravamen” of the suit involves the same general practices across all plans.

On the merits of the separate account claims, the Court found that the complaint did not state a claim for breach of fiduciary duty because the complaint did not plausibly allege that Voya kept plan money, so there was no inference of misconduct. As to the prohibited transaction claims, the complaint did not allege, the Court said, that any improper transfers occurred,  and one could not be presumed because of opportunity.

The Court’s decision is important because it shows that, at least for some district judges, the Supreme Court’s Twombly plausibility standard continues to limit the ability of plaintiffs to sue for, and seek discovery on, alleged wrongdoing in plans in which they did not participate.  It is also important because it requires plaintiffs to carefully allege self-dealing facts.  That said, the decision has the potential to lead to piecemeal litigation, with a multiplicity of suits asserting similar claims. And note that the Dezelan case is far from over. On August 3, 2017, the plaintiff filed her amended complaint; an answer or new motion to dismiss is due September 18.

By: Ian Morrison and Tom Horan

Seyfarth Synopsis: In a strong decision for insurers, the Eighth Circuit affirmed summary judgment for the administrator, rejected plaintiff’s conflict of interest argument, and found that it was not arbitrary for the administrator to require objective evidence of impairment when processing an LTD claim.

Cooper v. Metropolitan Life Insurance Company, No 16-3429, 2017 WL 2853729 (8th Cir. July 5, 2017), is a fairly typical ERISA long-term disability case, but has unusually strong pro-insurer holdings. On appeal from a summary judgment win for MetLife, the Eight Circuit conclusively rejected the plaintiff’s claim that the insurer’s dual role as decisionmaker and payor of benefits warranted a closer review of its decision.

In support of the LTD claim at issue, plaintiff submitted documentation from both her treating physician and her chiropractor. MetLife found no clinical findings to support disability. Plaintiff did not formally appeal, but continued to correspond with MetLife and supplied additional notes from her treating physician. MetLife referred those records, as well as the records from previous STD and LTD claims, to an independent physician for review. The reviewing physician found no objective clinical support for the conclusion that plaintiff was disabled as defined in the plan.

On appeal, the plaintiff argued that the district court erred in applying the abuse of discretion standard and refusing to consider affidavits from her treating physician and chiropractor that were outside the administrative record. The court rejected plaintiff’s argument that MetLife’s dual role warranted more searching review. The court noted that plaintiff’s generic claim of conflict was devoid of evidence of biased decision making. Instead, the court found that the record evinced a comprehensive review, including reliance on the opinion of a qualified independent expert, and did not require a “less deferential” review under the U.S. Supreme Court’s decision in Metropolitan Life Insurance Co. v. Glenn, 554 U.S. 105 (2008).

The Eighth Circuit also found it permissible for the insurer to rely on the opinion of its retained physician instead of the competing views of a treating physician, especially where the plaintiff was given repeated notice of the type of evidence missing from her physician’s submissions. In reaching its conclusion, the court rejected the oft-heard argument that it was arbitrary to insist upon objective evidence of impairment. The court stated that that MetLife was entitled to favor the reviewing physician’s opinion over that of plaintiff’s treating physician—particularly where the treating physician was not tasked with interpreting “disability” as defined in the plan—so long as the reviewing physician’s conclusion was a reasonable one to draw from the record. Finally, the court rejected plaintiff’s argument that MetLife violated the ERISA claims regulations by having a nurse with unspecified credentials interpret certain lab tests, reasoning that MetLife was in substantial compliance with the claim regulations and that there was no evidence that having a different professional review the tests would have changed the outcome.

Cooper will become a go to case for insurers and other benefit plan administrators to cite in their summary judgment briefs, at least as to its “objective evidence” and conflict holdings.  The court’s “substantial compliance” holding, however, may not survive the implementation of the revised DOL claim regulations.

 

By Michelle Scannell and Mark Casciari

Seyfarth Synopsis: The Supreme Court appears to have barred equitable tolling under ERISA Section 413’s six-year statute of repose for fiduciary breach claims, subject only to well-pled allegations and proof of fraud or concealment.

Statutes of repose begin to run after a defendant’s last culpable act or omission–regardless of when a plaintiff is injured—and give defendants a complete defense to any lawsuit commenced after the repose limitations period. ERISA Section 413 provides a six-year statute of repose for fiduciary breach claims, with a narrow exception, “in the case of fraud or concealment.” If the exception applies, the claim may be brought within six years of discovery of the breach.

The Supreme Court recently shut down the argument that the tolling doctrine in American Pipe & Construction Company v. Utah, 414 U.S. 538 (1974) applies to an unconditional statute of repose.  The American Pipe rule allows the equitable tolling of individual claims during the pendency of a class action until class certification is denied or the individual is no longer part of the class.  So the equitable tolling doctrine allows courts to extend limitations periods beyond the limitations period set forth by Congress, and creates substantial uncertainty for defendants.

In California Public Employees Retirement Sys. (CALPERS) v. ANZ Securities, Inc., No. 16-373 (June 26, 2017), the Court dismissed as untimely a securities case filed by CALPERS after the statute of repose expired.  CALPERS argued that the lawsuit was timely because the same claim was timely asserted in another securities class action that CALPERS opted out of after filing its own case.  The Court rejected the CALPERS argument that the timely filing of the class action equitably tolled statute of repose for its individual case.

The Supreme Court said that unconditional statutes of repose may not be tolled under any circumstances. The Court said that statutes of repose reflect a legislative intent to protect defendants from an “interminable threat of liability,” which displaces the traditional power of courts to modify statutory time limits based on equitable doctrines, including the one applied in American Pipe. Statutes of repose, the Court stated, offer “full and final security after” the repose period expires.

By direct analogy, the CALPERS decision should apply to the ERISA Section 413 statute of repose, with one caveat.

Section 413, unlike the securities limitation statute at issue in CALPERS, is not unconditional.  Its “fraud or concealment” exception, as the Supreme Court noted in CALPERS, “demonstrates the requisite intent to alter the operation of the statutory period.”

ERISA fiduciaries therefore still face indeterminate liability in cases of alleged fraud or concealment. But it is difficult for plaintiffs to allege, let alone prove, fiduciary fraud or concealment.  Strict pleading standards dictated under Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), may provide fiduciaries with a strong motion to dismiss argument that, if successful, could provide a quick win, and obviate the need to expend substantial time and money associated with the rigors of discovery.

The CALPERS decision is good for fiduciaries sued on claims accruing more than six years before a suit is filed. CALPERS removes equitable tolling from the arsenal of plaintiff arguments, leaving only the much harder “fraud or concealment” argument to revive what otherwise would appear to be a stale case.

 

By Sam Schwartz-Fenwick and Michael W. Stevens

Seyfarth Synopsis: The Texas Supreme Court held that the U.S. Supreme Court’s landmark marriage equality decision, Obergefell v. Hodges, did not dispositively address how far government employers must go in providing benefits to same-sex married couples.

In a provocative opinion, in Pidgeon v. Turner, No. 15-0688, the Texas Supreme Court held that Obergefell v. Hodges, 135 S. Ct. 2584 (2015), does not necessarily require state governments to extend marital benefits to same-sex married couples.

Procedural Background

In 2013, the city of Houston began extending benefits to same-sex spouses of city employees who were lawfully married. Shortly thereafter, Pidgeon was filed. It alleged that the city’s actions violated Texas and Houston law. The law was enjoined by a state court. In July 2015, the Texas court of appeals reversed the injunction, holding that Obergefell represented a “substantial change in the law regarding same-sex marriage since the temporary injunction was signed,” and that Obergefell forbade states from refusing to recognize lawful same-sex marriages.  The appeals court also remanded to the trial court to issue opinions “consistent with” Obergefell . Plaintiffs then appealed to the Texas Supreme Court.

The Court’s Opinion

The Texas Supreme Court reversed. The Court wrote “The [U.S.] Supreme Court held in Obergefell that the Constitution requires states to license and recognize same-sex marriages to the same extent that they license and recognize opposite-sex marriages, but it did not hold that states must provide the same publicly funded benefits to all married persons.”  Slip op. at 19 (emphasis added). The Texas Supreme Court remanded the case, so the trial court could decide if the Constitution or Obergefell “requires citizens to support same-sex marriages with their tax dollars.” Id. at 20.

The decision rested on the proposition that Obergefell is “not the end” of the inquiry as to the “reach and ramifications” of the constitutional status of same-sex marriage. Id. at 23.  Notably, the Texas Supreme Court acknowledged that the U.S. Supreme Court had, in the same week, decided Pavan v. Smith, No. 16-992, which rejected the state of Arkansas’ efforts to limit recognition of same-sex parents on birth certificates.  In Pavan, in a per curiam opinion, the Court held that same-sex couples are entitled to the same “constellation of benefits that the Stat[e] ha[s] linked to marriage.”  2017 WL 2722472, at *2 (citations omitted).

Despite the apparent inconsistency with Pavan, the Texas Supreme Court emphasized the purported uncertainty over the reach of same-sex marital benefits by noting that the U.S. Supreme Court has also granted certiorari in Masterpiece Cakeshop, Ltd. v. Colo. Civil Rights Comm’n, No. 16-111, a case involving a baker who was sued after he refused to make a wedding cake for a same-sex wedding.

Next Steps

The trial court may now proceed to the merits of the case, and a ruling that is inconsistent with Obergefell and Pavan is a distinct possibility.  Should the case ultimately proceed to the U.S. Supreme Court, in light of Pavan, and assuming the current membership of the Court remains the same, it seems unlikely that a narrow reading of Obergefell, at least as to governmental actors, would be upheld.  Unlike Masterpiece Cakeshop, Ltd., Pidgeon does not raise any questions of freedom of speech or religious liberty.  Rather, as with Pavan and Obergefell, it addresses whether state actors can treat same-sex marriages differently than opposite sex marriage.

While the decision in Pidgeon may ultimately be vacated, that this decision was issued 2-years after a ruling by the Supreme Court legalizing same-sex marriage, underscores that opponents of marriage equality continue to use courts as a vehicle to limit or reverse marriage equality.

As Pidgeon and other challenges to marriage equality make their way through the courts, employers and benefit plans considering modifying their benefit offerings to exclude same-sex spouses should tread very carefully, especially given the EEOC’s position that differential benefit offerings to same-sex spouses violates Title VII of the Civil Rights Act.

By: Mark Casciari and Jules Levenson 

Seyfarth Synopsis: The Supreme Court has held unanimously that a 1980 amendment to ERISA means that a pension benefit plan need not be established by a church in order to be exempt from ERISA rules, including most importantly, its funding rules.  The decision shows that most courts misread ERISA, which is not that surprising, given the statute’s complexity.

On June 5, 2017, the Supreme Court unanimously held that a pension benefits plan need not be established by a church in order to qualify as a church plan exempt from ERISA funding and other rules, reversing three Courts of Appeal decisions to the contrary. Advocate Health Network v. Stapleton, No. 16-74 — S. Ct. — (June 5, 2017).

Stapleton involved pension plans established by nonprofit hospitals allegedly affiliated with churches.  The original ERISA definition of church plan required that the plan be “established and maintained . . . by a church,” but a 1980 amendment defined the phrase “established and maintained . . . by a church” to include plans maintained by certain affiliate organizations.  The question before the Court was whether a plan qualified as a church plan simply by virtue of its being maintained by a qualifying affiliate organization (referred to by the Court as a “principal purpose organization”) — the position taken by the hospitals — or whether a church must first have established the plan — the position taken by the plaintiffs.

In an opinion sure to delight enthusiasts of textualism, Justice Kagan, writing for a unanimous court (absent Justice Gorsuch), sided with the hospitals. The Court concluded that Congress’s amendment to ERISA brought plans maintained by principal purpose organizations into the exempt category of plans “established and maintained . . . by a church,” even if those plans were not in fact initially established by church. The Court also noted that that the IRS, DOL, and PBGC had long interpreted ERISA to exempt these plans.

This decision is a significant victory for church-affiliated healthcare organizations that have not already settled for tens and even hundreds of millions of dollars with the plaintiff attorneys and the classes they represent. The settlements attempted to bridge the funding shortfalls if those plans were subject to stringent ERISA funding rules. The decision thus rewards those employers who took a hard line against Courts of Appeals decisions.  It also is yet another lesson that one can never be too careful interpreting ERISA, and sometimes the correct interpretation runs counter to many lower court decisions and the admonitions of strident plaintiff counsel.

We have written previously about how this case might affect ERISA litigation.  We thought the Court might comment on the U.S. Constitution’s “concrete injury” precondition to suit in federal court under ERISA, in the context of an ERISA violation that is limited to technical statutory compliance.  The Court did not, however.  Instead, the Court offered a lesson on how to interpret a highly complex statute.

By: Sam Schwartz-Fenwick and Chris Busey

Seyfarth Synopsis: The Eighth Circuit upheld dismissal of Title VII claims challenging an employee benefit plan’s blanket transgender exclusion because the exclusion impacted the  employee’s transgender son, not the employee. The Eight Circuit overturned the dismissal of the employee’s claim against the plan’s third-party administrator under the Affordable Care Act, finding the complaint sufficiently alleged an actionable claim against the TPA.

The Eighth Circuit granted a potentially short-lived reprieve to a plaintiff challenging a blanket exclusion for transgender services contained in her employer’s health plan. The case, Tovar v. Essentia Health, et al, No. 16-3186 (8th Cir. May 24, 2017), allowed part of the plaintiff’s claim alleging a violation under Section 1557 of the ACA to proceed by remanding it to the district court.

The Section 1557 regulations at issue in Tovar are currently subject to a nationwide injunction issued in the Northern District of Texas. The Department of Health and Human Services is party in that suit, and has indicated that it may seek to repeal that regulation through the typical notice and comment rulemaking procedures. The Circuit Court did not address the precarious nature of Section 1557 in its decision.

Rather, the Eighth Circuit restricted its analysis to the decision of the district court. The District Court dismissed Tovar’s claims under Title VII, the Minnesota Human Rights Act, and Section 1557, as we covered here.

The Eighth Circuit first upheld the dismissal of Tovar’s Title VII and MHRA claims. It agreed that Tovar was not within the class of individuals protected by those statutes because she did not allege discrimination based on her own sex, but that of her transgender son.

The Court went on to overturn the dismissal of the ACA claim against the TPA. The District Court had dismissed her ACA claims for lack of Article III standing because Tovar named the wrong entity and because only the employer (not the TPA) had the ability to modify plan terms (such as the transgender exclusion). The Eighth Circuit found the plan documents did not definitively establish that the named defendant had no involvement in the administration of the plan. The Eighth Circuit further found that Plaintiff alleged sufficient facts showing that the “allegedly discriminatory terms originated” with the TPA. And thus this issue was remanded to the district court.

The Eighth Circuit specifically declined to address the argument that an administrator could not be liable for administering a plan where plan design is under the sole control of another organization. The dissent forcefully addressed this question, noting that an Office of Civil Rights interpretation of Section 1557 provides that “third party administrators are generally not responsible for the benefit design of the self-insured plans they administer and ERISA . . . requires plans to be administered consistent with their terms.”