HMO’s In State Limitation Upheld


When an HMO Provides the Same Limitations for Physical as Mental Problems the Limitations are Enforceable

Plaintiff Suzanne Stone had an employer-provided health care plan (the “Plan”) governed by the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 1001-1461, and administered by Defendant U.S. Behavioral Health Plan, California, dba OptumHealth Behavioral Solutions of California (“Optum”). The Plan excluded coverage for any out-of-state treatment, except for emergency or urgently needed services in Suzanne Stone v. Unitedhealthcare Insurance Company; U.S. Behavioral Health Plan, California, DBA OptumHealth Behavioral Solutions of California, No. 19-16227, United States Court Of Appeals For The Ninth Circuit (November 9, 2020) the Ninth Circuit was asked to compel coverage for out of state services contrary to the stated exclusion.


Plaintiff, aware of the exclusion sent her daughter to an out-of-state residential treatment program for anorexia nervosa. After Optum and UnitedHealthcare Insurance Company (together, “Defendants”) denied coverage, Plaintiff sued pursuant to ERISA. The district court granted summary judgment in favor of Defendants.

Both the Federal Parity Act and the California Parity Act require that health plans provide equal coverage for mental illnesses and physical illnesses. Here, the denial of coverage was based solely on the Plan’s exclusion of coverage for out-of-state treatment, which applies equally to mental and physical illnesses.

The Plan, a health maintenance organization (“HMO”) plan, provides that mental health services are covered when medically necessary, preauthorized by Optum, and provided at a participating facility. As pertinent here, the Plan excludes coverage for mental health services rendered outside the service area, except for emergency services or urgently needed services. The service area is defined as “[t]he geographic area in which [Optum] is licensed to arrange for Behavioral Health Services in the State of California by the California Department of Managed Health Care.”

The Plan similarly excludes coverage for physical health services rendered outside the service area, except for emergency services or urgently needed services. As with mental health services, the service area is defined as “[the] geographic region in the State of California where United Healthcare is authorized by the California Department of Managed Health Care to provide Covered Services to Members.”

G.S., Plaintiff’s minor daughter, began receiving treatment in June 2014 at an eating disorder program run by the University of California San Diego (“UCSD”). Optum approved the coverage. UCSD discharged G.S. on July 18, 2014, stating that she “required a higher level of care at a family based treatment residential facility. There are no known FBT residential facilities in California and she was therefore referred to Eating Recovery Center [“ERC”] in Denver, Colorado.”

Prior to G.S.’s discharge from UCSD, Plaintiff called Optum to ask about out-of-state residential treatment centers and was told that the Plan did not cover out-of-state treatment other than for an emergency.

Plaintiff admitted G.S. to the out of state facility, ERC,  on July 21, 2014 and again ws told by Optum that there was no coverage for out of state treatment. Plaintiff was told that Center for Discovery (“CFD”) was an in-network residential treatment center in California for adolescent eating disorders. On July 24, 2014, Optum informed ERC that Plaintiff had a California HMO and that there was no coverage for G.S.’s treatment at ERC.


The Federal Parity Act requires that “benefits and treatment limitations for mental health problems shall be ‘no more restrictive’ than those for medical and surgical problems.” Danny P. v. Cath. Health Initiatives, 891 F.3d 1155, 1158 (9th Cir. 2018).

Plaintiff has not shown that the Plan’s requirement that G.S. receive treatment at a residential treatment facility in California is a more restrictive limitation on treatment than limitations on treatment for medical and surgical issues. In fact, she does not contend that the Plan’s geographic limitation applies unequally to physical and mental health issues. Therefore, the Ninth Circuit found that the Federal Parity Act was not violated by Defendants’ denial of coverage.

Plaintiff has not presented any evidence that the Plan’s coverage of mental illnesses is less generous than its coverage of physical illnesses, or that the exclusion for out-of-state treatment limits coverage of mental health conditions, but not physical health conditions. The California Parity Act therefore is not implicated here.

Because Plaintiff did not show that the Plan’s requirement of in-state treatment is applied to mental health conditions, but not to other medical conditions. The Plan’s geographical limitation did not violate either the Federal Parity Act or the California Parity Act.

The Ninth Circuit affirmed the district court’s grant of summary judgment in favor of the defendants in an ERISA action concerning the denial of health care coverage for out-of-state residential treatment for anorexia nervosa. It also held that defendants’ denial of coverage did not violate the Mental Health Parity and Addiction Equity Act or the California Mental Health Parity Act because the denial was based solely on the ERISA plan’s exclusion of coverage for out-of-state treatment, which applied equally to mental and physical illnesses.


HMO’s exist to allow people to buy inexpensive health insurance and can do so by limiting the availability of the coverage. The treatment needed by GS could be provided in the state of California and would have been covered by the plan. However, the Plaintiff decided to use the facility in Colorado that was believed to be better for GS than what is available in California. She was told there would be no coverage and ignored the fact and decided to sue for coverages clearly and unambiguously excluded. She failed.

© 2020 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at and

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