Rebecca Morris, individually and on behalf of all others similarly situated; Becky Ebenkamp, individually and on behalf of all others similarly situated, Plaintiffs-Appellants,
California Physicians' Service, DBA Blue Shield of California; Does, 1-10, inclusive, Defendants-Appellees.
and Submitted October 10, 2018 Pasadena, California
from the United States District Court for the Central
District of California D.C. No. 2:16-cv-05914-JAK-JPR John A.
Kronstadt, District Judge, Presiding
Angoff (argued) and Christine H. Monahan, Mehri & Skalet
PLLC, Washington, D.C.; Dan Stormer, Randy Renick, and
Cornelia Dai, Hadsell Stormer & Renick LLP, Pasadena,
California; for Plaintiffs-Appellants.
Gregory N. Pimstone (argued), Craig S. Bloomgarden, and
Joanna S. McCallum, Manatt, Phelps & Phillips, LLP, Los
Angeles, California; Michael S. Kolber, Manatt, Phelps &
Phillips, LLP, New York, New York; for Defendant-Appellee
California Physicians' Service.
Before: Mary M. Schroeder and Jacqueline H. Nguyen, Circuit
Judges, and Thomas J. Whelan, [*] District Judge.
Protection and Affordable Care Act
panel affirmed the district court's dismissal of a claim
that plaintiffs' insurer violated the Patient Protection
and Affordable Care Act's "Medical Loss Ratio"
provision of the ACA requires an insurer to pay a rebate to
enrollees if the ratio between what it pays out in claims for
medical services is less than 80% of the revenue it takes in.
The panel held that, in determining its Medical Loss Ratio
under 42 U.S.C. § 300gg-18, the defendant insurer
properly included as part of its payout the payments it made
in settling a dispute with some of its enrollees, and there
was no basis for excluding payments for services rendered by
SCHROEDER, Circuit Judge.
appeal, Plaintiffs-Appellants contend that their insurer,
Blue Shield of California ("Blue Shield"), violated
an integral provision of the Patient Protection and
Affordable Care Act ("ACA"), the Medical Loss Ratio
("MLR"), 42 U.S.C. § 300gg-18, a provision
that has not yet been interpreted by our Court or our sister
circuits. The MLR is the ratio between what an insurer pays
out in claims for medical services and the revenue it takes
in. Id. § 300gg-18(a). The insurer must pay a
rebate to enrollees if the payout is less than 80% of the
revenue. Id. § 300gg-18(b)(1). Plaintiffs in
this case, enrollees seeking a larger rebate, argued that
Blue Shield improperly included as part of its payout the
payments it made in settling a dispute with some of its
enrollees. The district court dismissed Plaintiffs'
action, ruling that pursuant to the settlement, the payments
had been made, whether earlier disputed or not, and were
therefore properly included. We affirm.
Medical Loss Ratio ("MLR") Defined
enacted the ACA in 2010 to decrease the cost of health care
and increase the number of Americans with health insurance.
See Nat'l Fed. of Indep. Bus. v. Sebelius, 567
U.S. 519, 538 (2012). The MLR plays a key role in furthering
Congress' plan to decrease health care costs by requiring
health insurance companies to spend at least 80 percent of
their premium income on health care claims and health quality
improvement. 42 U.S.C. § 300gg-18(a), (b). Health
insurance companies that do not meet the 80 percent spending
requirement must refund to their enrollees the difference
between the amount actually spent and the 80 percent figure.
Id. § 300gg-18(b)(1). For example, if a health
insurance company has spent only 70 percent of premiums on
clinical services and health improvements, its enrollees are
entitled to a 10 percent rebate of premium revenue. This rule
is intended to ensure that spending is focused on health care
expenses, as opposed to administrative costs such as salaries
or marketing. Id. § 300gg-18(b)(2); 45 C.F.R.
statute spells out the enforcement scheme. Health insurance
companies must calculate and annually report their MLR to the
Department of Health and Human Services (HHS), the agency
tasked with enforcing the provision. 42 U.S.C. §
300gg-18(a). The instructions for calculating the ratio are
provided under the MLR provision of the ACA and further
explained in federal regulations. The statute defines the MLR
as "the ratio of the incurred loss (or incurred claims)
plus the loss adjustment expense (or change in contract
reserves) to earned premiums." Id. The MLR
regulations define "incurred claims" to include
payments made by an issuer for "clinical services"
and to exclude administrative expenses or work unrelated to
clinical services. 45 C.F.R. § 158.140(a), (b)(3)(iii).
Thus, the MLR compares what the health insurance company has
spent on clinical services to the premium revenue the
insurance company received from its enrollees. The statute
requires a rebate when reported amounts paid out for actual
clinical and related services are less than 80% of reported
premium revenue. It thereby encourages insurers to use
premium revenue to reimburse the costs of enrollees'
medical treatment rather than to use it on administrative
expenses. Indeed, the statutory section containing the MLR is
entitled "Bringing down the cost of health care
coverage." 42 U.S.C. § 300gg-18.
Shield was selected by the State of California in 2010 to
provide affordable health care plans on the state's
health insurance exchange, "Covered California."
Under Blue Shield's plans, "participating" or
"in-network" providers accepted Blue Shield Covered
California patients and charged for medical services at Blue
Shield's participating provider benefit level.
"Out-of-network" providers billed for medical
services at higher rates than the in-network participating
provider benefit level.
after Blue Shield was selected as an insurance company on
California's health insurance exchange, however,
enrollees who had purchased Blue Shield Covered California
plans began complaining of difficulty finding in- network
providers charging in-network rates. The enrollee complaints
led to the discovery that Blue Shield had erroneously listed
out-of-network physicians in its network directory who had
not in fact agreed to accept Blue Shield Covered California
patients. As a result of Blue Shield's network directory
mistake, some enrollees were charged the higher,
out-of-network rates for medical services they received. To
remedy the problem, Blue Shield executed a settlement
agreement to reprocess the out-of-network claims at
in-network rates, and to reimburse enrollees for the extra
money they were charged on account of using an out-of-network
provider. Blue Shield then included these settlement payments
in the numerator of the MLR as "incurred claims,"
or payments for clinical services. According to the
settlement agreement, Blue Shield reimbursements already
totaled more than 35 million dollars.
Blue Shield enrollees, Becky Ebenkamp and Rebecca Morris, on
behalf of a class of more than 446, 000 enrollees
("Plaintiffs"), filed an action in Los Angeles
County Superior Court in 2016, alleging Blue Shield violated
the ACA by including the settlement payments in the MLR
numerator. The named plaintiffs are Blue Shield enrollees who
had received a MLR rebate for 2014, but they asserted that
Blue Shield's settlement payments improperly inflated
Blue Shield's MLR, thereby unfairly decreasing their
rebate. In Plaintiffs' view, under the terms of the
statute and of the settlement agreement, Blue Shield should
have included in the MLR numerator only reimbursements for
services provided by in-network providers. Plaintiffs
asserted that including the payments for services rendered by
providers outside those in the ...