The Health Law Ticker

A recent California First District Court of Appeal (“Court”) decision, Futterman v. Kaiser Foundation Health Plan, Inc., (“Futterman”) has shed light on potential liabilities for noncompliance with the State’s mental health parity requirements.¹

As background, the COVID-19 pandemic served as a catalyst for increasing already soaring behavioral health care demand, by intensifying mental health and substance use conditions across the country. In a 2020 survey by the California Health Care Foundation, Californians ranked mental health treatment as their top health concern. That same year, Governor Gavin Newsom bolstered parity protections by signing into law amendments to the California Mental Health Parity Act (“CMHPA”). Health plans and insurers, subject to California’s jurisdiction, whose coverage is not amenable to the CMHPA may be vulnerable to challenges from regulators and private parties, as demonstrated in Futterman.²

The Case Against Kaiser

In Futterman, members of Kaiser Foundation Health Plan, Inc. (the “Plan”) brought a class action seeking both injunctive relief for alleged violations of the CMHPA and to recover penalties for discrimination against members seeking mental health treatment under the Unruh Civil Rights Act. The Court of Appeal ultimately reversed a Superior Court ruling for summary judgment in favor of the Plan, finding that there were triable issues of fact regarding the medical necessity of members’ mental health treatments and intentional underfunding of mental health treatments.

Plaintiffs presented evidence that the Plan dealt with mental health treatment more stringently than physical illness, supporting the inference that the Plan was making decisions based on criteria other than medical necessity and providing less robust coverage for mental health issues than for physical illnesses.

Among other indications, the Court found that the evidence showed that the Plan had knowingly provided staff at insufficient levels to allow for frequent, individual therapy when medically necessary and that the Plan lacked effective policies to ensure timely one-on-one care when the responsible clinicians were unavailable. The Court also determined that members could pursue their claims without interfering with the regulatory authority of the California Department of Managed Health (“DMHC”).

Mental Health Parity Compliance Requirements Continue to Proliferate

The decision in Futterman highlights the courts’ willingness to take seriously allegations of CMHPA violations through a factual inquiry into a health plan’s policies. The CMHPA, a part of the Knox-Keene Health Care Service Plan Act of 1975, calls for every California state-regulated commercial health plan and insurer offering medical or surgical coverage to likewise cover the diagnosis and medically necessary treatment of mental health and substance use disorders.³ 2020 amendments to the CMHPA established a uniform definition of “medically necessary treatment” as developed by the American Medical Association. This is critical, as a lack of meeting medical necessity is often a reason for denying coverage and is an essential aspect of utilization review.

For health plans, a strong compliance program is key, particularly because the California statute requires that plans follow the medical necessity criteria of several disparate nonprofits instead of national commercial or internal criteria to discern medical necessity.⁴ A one-size-fits-all policy that requires or recommends group therapy in lieu of individualized determinations of the medical necessity of one-on-one therapy creates the potential for liability under the CMHPA when similar policies are not used for the treatment of physical health conditions.

Health plans in California must address the specific needs of the member-patient in accordance with generally accepted standards of mental health and substance use disorder care.⁵ Health plans also need to prepare for arranging mental health and substance use disorder treatment out-of-network, including follow-up services, when medically necessary treatment is unavailable in network, and ensure members pay no more than they would for covered in-network services.⁶ Recent amendments to the CMHPA also prohibit disability insurers from curtailing long-term mental health and substance use disorder treatment benefits or coverage, even if there would be flexibility for entities to do so under the Employee Retirement Income Security Act of 1974 (ERISA).⁷

National and Other State Health Plans and Insurers Must Also Get Their Houses in Order

Finally, compliance is not merely a concern for health plans and insurers in California. The Consolidated Appropriations Act of 2021 amended the MHPAEA to provide similar protections at the federal level. Group health plans are now required to prepare comparative analyses to ensure that any non-quantitative treatment limitations (such as “medical necessity” and utilization reviews) (“NQTLs”) applicable to mental health/substance use disorder benefits are in parity with those applied to medical/surgical benefits. The Department of Labor has also stepped up its enforcement efforts and is now demanding a copy of these comparative analyses upon plan audit, as well as making annual reports to Congress on the results of its audit findings.

Kaiser has petitioned the Supreme Court to review the Futterman ruling, thus it may not be the final say from the courts, but the regulatory pendulum is clearly swinging in the direction of increased, specific requirements and strong enforcement.

¹Futterman et al. v. Kaiser Foundation Health Plan, Inc., 91 Cal. App. 5th 656 (Cal. Ct. App. 2023).

²The CMHPA applies to fully-insured health plans written out of California, whereas the federal Mental Health Parity and Addiction Equity Act of 2008 (“MHPAEA”) applies to fully-insured and self-insured plans sponsored by employers with 50 or more employees.

³Knox-Keene Health Care Service Plan Act of 1975, § 1374.721(a).

⁴See id. § 1374.721(b)-(c).

⁵See id. § 1374.72(a)(3)(A)

⁶See id. § 1374.72(d).

⁷See Cal. Ins. Code § 10144.5(a)(1).