“Binding” External Benefit Determinations Might Not Bind Courts Under ERISA

Does ERISA preempt rules that give “binding” effect to benefit determinations made by a plan’s external review panel? Not as long as those determinations don’t actually bind courts, the Eleventh Circuit held in Alexandra H. v. Oxford Health Insurance Inc. Freedom Access Plan, 2016 WL 4361936 (11th Cir. Aug. 16, 2016).

The plaintiff in the case was challenging an adverse medical-necessity determination made by the insurer of her employee-benefits plan. After exhausting the plan’s internal administrative appeals, she pursued an external appeal under the plan and New York law, both of which permitted an external appeal to an independent “clinical peer reviewer”—whose decision would “be binding on the plan and the insured,” N.Y. Ins. Law § 4914(b)(4)(A)(i), (iv).  When the external reviewer agreed that the treatment she sought was not medically necessary, the plaintiff sued in federal court to recover plan benefits under § 502(a)(1)(B) of ERISA, 29 U.S.C. § 1132(a)(1)(B).

Unsurprisingly, the insurer argued that the external reviewer’s decision was binding and dispositive of the plaintiff’s claim. The plaintiff countered that under New York law (which had been selected to govern the plan), several courts have held in similar contexts that “binding” means binding on everyone except for courts.  The district court agreed with the insurer, and the plaintiff appealed.

On this issue, the Eleventh Circuit sided with the plaintiff. In an opinion by visiting Judge Raymond C. Clevenger III of the Federal Circuit, the court explained that although the interpretation of an ERISA plan is governed by federal common law, federal courts can borrow rules of interpretation from analogous state laws that are not unreasonable or fundamentally unfair.  On the ground that allowing courts to revisit “binding” external-review decisions in accordance with New York law would further ERISA’s goals, the court reversed (in part) and remanded for the plaintiff to continue pursuing her claim.

In an interesting twist, Judge Clevenger’s opinion also addressed the plaintiff’s alternative argument that ERISA preempts any state laws that would make an external reviewer’s decision binding in court: “[T]here is no complete preemption problem because the external review is not binding and thus does not replace or erase any ERISA remedy.” Alexandra H., 2016 WL 4361936, at *13.

This reasoning might be dicta, but it arguably conflicts with Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 379 (2002)—in which the Supreme Court rejected a preemption argument and stated that “independent review under [a similar Illinois statute] may well settle the fate of a benefit claim under” ERISA.  Time will tell whether Alexander H. signals a broader departure from the Supreme Court’s suggestion that binding external reviews can limit judicial scrutiny under ERISA to “other aspects of the plan (beyond the ‘medical necessity’ of a particular treatment).” Id. at 380 n.10.

Posted by Lee Peifer.

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