Eighth Circuit Holds ERISA Plan Participant Has Standing to Sue Health Plan’s Former Third-Party Administrator and Upholds Denial of Medical Claim

In Shafer v. Zimmerman Transfer, Inc., No. 22-2275, __F.4th__, 2023 WL 3857343 (8th Cir. June 7, 2023), a case seeking to recover ERISA medical benefits, the Eighth Circuit considered (1) whether the Plaintiff-Appellant Darrin Shafer has standing to sue his self-funded health plan’s former third-party administrator (“TPA”), Benefit Plan Administrators of Eau Claire, LLC (“BPA”); and (2) whether the TPA’s denial of coverage of Plaintiff’s hernia surgery to fix a bowel obstruction caused by prior bariatric surgery was an abuse of discretion. The court found that Plaintiff has standing to sue the former TPA but the TPA’s denial of benefits was not an abuse of discretion.

On the standing issue, BPA argued “that Shafer lacks standing to sue it because it is no longer the third-party administrator for the plan, so Shafer’s injury—being denied benefits—is no longer redressable by BPA.” BPA relied on Hall v. LHACO, Inc., 140 F.3d 1190 (8th Cir. 1998), where the court held that an ERISA participant’s benefit claim was not redressable against a former TPA because it could no longer pay benefits or enforce the plan participant’s rights under the plan. “Since Hall, however, the Supreme Court has made clear that claims-processing rules and elements of a cause of action are distinct from limitations on subject-matter jurisdiction.” See Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154, 160-61 (2010). The court explained that the provision relied on in Hall does not implicate jurisdiction. Instead, § 1132(e) expressly references jurisdiction and provides no jurisdictional limitation on who can be sued under § 1132. That a participant might not be able to enforce a money judgment against a former TPA does not mean that he lacks standing to sue that TPA. Thus, Shafer has standing to sue BPA.

On the claim denial, the court found that BPA did not abuse its discretion. The plan at issue only pays benefits for “Medically Necessary Covered Expenses” provided they are not excluded under the exceptions provisions of the policy. The plan excludes “treatment … in connection with weight reduction, including … any procedure performed to alter the digestive process for the purpose of weight loss,” and “treatment, service or supplies due to complications of a non-Covered Expense.” Shafer’s bariatric surgery is undisputedly not covered under the plan.

The court considered and rejected Shafer’s arguments for why there was an abuse of discretion in the denial of his coverage. First, the court found that Defendants were not required to cover his emergency treatment under Iowa Code § 514C.16 and an implementing regulation of the Affordable Care Act (“ACA”), 45 C.F.R. § 147.138(b)(2). These provisions do not require that a plan cover all emergency services, and coverage is subject to a plan’s exclusions. Iowa Code § 514C.16.1; 45 C.F.R. § 147.138(b)(2)(v)(A). Second, the plan does not cover emergency services without any exclusions just because the treatment was medically necessary. The plan excludes coverage for complications resulting from bariatric surgery. Third, interpreting the plan to deny benefits is not contrary to the plan’s stated goals because imposing and enforcing coverage limitations at the expense of a participant paying large medical bills is consistent with the plan goal of allocating limited resources among all plan participants. Lastly, Shafer did not demonstrate that any purported conflict of interest resulting from the physician reviewers being paid by BPA impacted the claims decision. The court gave the alleged conflict of interest little weight in finding there was no abuse of discretion.