Schmitt v. Kaiser Found. Health Plan of Wash.

• Decision Date: 14 July 2020
• Docket Number: No. 18-35846,18-35846
• Parties: Andrea SCHMITT, on her own behalf, and on behalf of all similarly situated individuals; Elizabeth Mohundro, on her own behalf, and on behalf of all similarly situated individuals, Plaintiffs-Appellants, v. KAISER FOUNDATION HEALTH PLAN OF WASHINGTON; Kaiser Foundation Health Plan of the Northwest; Kaiser Foundation Health Plan, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

965 F.3d 945

Andrea SCHMITT, on her own behalf, and on behalf of all similarly situated individuals; Elizabeth Mohundro, on her own behalf, and on behalf of all similarly situated individuals, Plaintiffs-Appellants,

v.KAISER FOUNDATION HEALTH PLAN OF WASHINGTON; Kaiser Foundation Health Plan of the Northwest; Kaiser Foundation Health Plan, Inc., Defendants-Appellees.

No. 18-35846

United States Court of Appeals, Ninth Circuit.

Argued and Submitted November 8, 2019 Seattle, Washington

Filed July 14, 2020

Eleanor Hamburger (argued) and Richard E. Spoonemore, Sirianni Youtz Spoonemore Hamburger PLLC, Seattle, Washington, for Plaintiffs-Appellants.

Medora A. Marisseau (argued) and Mark A. Bailey, Karr Tuttle Campbell, Seattle, Washington, for Defendants-Appellees.

Huma Zarif, Northwest Health Law Advocates, Seattle, Washington; Sarah Somers, Elizabeth Edwards, and Wayne Turner, National Health Law Program, Carrboro, North Carolina; for Amici Curiae National Health Law Program and Northwest Health Law Advocates.

Carly A. Myers, Silvia Yee, and Arlene B. Mayerson, Disability Rights Education & Defense Fund, Berkeley, California, for Amici Curiae Disability Rights Education and Defense Fund; National Association of the Deaf; Bazelon Center for Mental Health Law; Hearing Loss Association of America; Hearing Loss Association, Oregon State Association; Washington State Communication Access Project; Oregon Communication Access Project; and California Communication Access Project.

Before: Ronald M. Gould and Jacqueline H. Nguyen, Circuit Judges, and Gregory A. Presnell,^* District Judge.

OPINION

NGUYEN, Circuit Judge:

Section 1557 of the Patient Protection and Affordable Care Act ("ACA"), 42 U.S.C. § 18116, prohibits covered health insurers from discriminating based on various grounds, including disability. Prior to the ACA's enactment, an insurer could generally design plans to offer or exclude benefits as it saw fit without violating federal antidiscrimination law—in particular, the Rehabilitation Act—so long as the insurer did not discriminate against disabled people in providing treatment for whatever conditions it chose to cover. The primary issue before us is whether the ACA's nondiscrimination mandate imposes any constraints on a health insurer's selection of plan benefits. We hold that it does.

Andrea Schmitt and Elizabeth Mohundro have hearing loss severe enough to qualify them as disabled. They require treatment other than cochlear implants

, but their Kaiser health insurance plans exclude all hearing loss treatment except cochlear implants. In a putative class action, Schmitt and Mohundro allege that Kaiser violated section 1557 when designing plan benefits. They claim that Kaiser's categorical exclusion of most hearing loss treatment discriminates against hearing disabled people. The district court ruled that Kaiser's plans do not exclude benefits based on disability because the plans treat individuals with hearing loss alike, regardless of whether their hearing loss is disabling.

We agree with the district court that Schmitt and Mohundro have failed to state a plausible discrimination claim. The ACA specifically prohibits discrimination in plan benefit design, and a categorical exclusion of treatment for hearing loss would raise an inference of discrimination against hearing disabled people notwithstanding that it would also adversely affect individuals with non-disabling hearing loss. But the exclusion here is not categorical. While Kaiser's coverage of cochlear implants

is inadequate to serve Schmitt and Mohundro's health needs, it may adequately serve the needs of hearing disabled people as a group. Because the pleadings do not suggest otherwise, we affirm the district court's dismissal of the second amended complaint. But because amendment may not be futile, we reverse the district court's dismissal without leave to amend and remand so that Schmitt and Mohundro have that opportunity.

I. Statutory Background

A. Essential Health Benefits

Congress enacted the ACA "to increase the number of Americans covered by health insurance and decrease the cost of health care." Nat'l Fed'n of Indep. Bus. v. Sebelius , 567 U.S. 519, 538, 132 S.Ct. 2566, 183 L.Ed.2d 450 (2012). The ACA requires most Americans to maintain "minimum essential coverage," 26 U.S.C. § 5000A(a), which they can do through a variety of health insurance plans, such as those provided by their employer or the government or purchased directly from private carriers. See id. § 5000A(f). Plans that insurers offer to individuals and small employers must include an "essential health benefits package."¹ 42 U.S.C. § 300gg-6(a) ; see also 45 C.F.R. § 147.150(a) ("A health insurance issuer offering health insurance coverage in the individual or small group market must ensure that such coverage includes the essential health benefits package ....").

The ACA directs the Secretary of Health and Human Services to define, subject to certain constraints, the "essential health benefits" that plans in the individual and small group markets must cover. 42 U.S.C. § 18022(b)(1). The definition must include at least ten specified "general categories" of benefits, including "[r]ehabilitative and habilitative services and devices,"² as well as the "items and services" within those categories. Id. § 18022(b)(1), (b)(1)(G). The scope of coverage must be "equal to the scope of benefits provided under a typical employer plan," and the agency must conduct "a survey of employer-sponsored coverage" to inform its determination. Id. § 18022(b)(2)(A).

Under agency regulations, an insurer providing essential health benefits must offer benefits that are "substantially equal" to a "benchmark" plan set by the state. 45 C.F.R. § 156.115(a)(1). The State of Washington selects as its benchmark plan "the largest small group plan in the state by enrollment," which it supplements "as needed" to ensure coverage of "all of the ten essential health benefits categories." Wash. Rev. Code § 48.43.715(1) – (2) ; accord 45 C.F.R. § 156.100(a)(1). Washington's benchmark plan includes cochlear implants

as "rehabilitative services" but excludes "[h]earing aids other than cochlear implants." Wash. Admin. Code § 284-43-5642(7)(b)(i), (c)(iv).

B. Nondiscrimination Statutes

1. The Rehabilitation Act

The Rehabilitation Act of 1973, 29 U.S.C. § 701 et seq. , was the first major federal statute designed to protect the rights of individuals with disabilities. Smith v. Barton , 914 F.2d 1330, 1338 (9th Cir. 1990). Its linchpin, section 504, "creates a private right of action for individuals subjected to disability discrimination." Fleming v. Yuma Reg'l Med. Ctr. , 587 F.3d 938, 940 (9th Cir. 2009) ; see 29 U.S.C. § 794a(a)(2).

Section 504 broadly provides that "[n]o otherwise qualified individual with a disability ... shall, solely by reason of her or his disability, be excluded from the participation in, be denied the benefits of, or be subjected to discrimination under any [federally funded] program or activity." 29 U.S.C. § 794(a). However, section 504 does not require an insurer to design plan benefits so as to avoid imposing a disproportionate burden on disabled people—the insurer need only provide disabled people "meaningful access" to whatever benefits it chooses to offer. Alexander v. Choate , 469 U.S. 287, 301, 105 S.Ct. 712, 83 L.Ed.2d 661 (1985). In Choate , the Supreme Court rejected a Rehabilitation Act challenge to a state Medicaid regulation that adversely affected a disproportionate number of disabled users of hospital services. Id. at 289, 105 S.Ct. 712. The Court reasoned that the rule applied equally to disabled and non-disabled people, noting that it was "neutral on its face, [was] not alleged to rest on a discriminatory motive, and [did] not deny [disabled people] access to or exclude them from the particular package of Medicaid services [the state had] chosen to provide." Id. at 309, 105 S.Ct. 712.

2. The Affordable Care Act

Section 1557 of the ACA prohibits certain types of discrimination in health care. It does so by referencing four other statutes, including section 504 of the Rehabilitation Act, that address discrimination based on various suspect grounds: "race, color, or national origin," 42 U.S.C. § 2000d, "age," id. § 6101, "sex," 20 U.S.C. § 1681, and "disability," 29 U.S.C. § 794(a). See 42 U.S.C. § 18116(a). Section 1557 provides that "an individual shall not, on the ground prohibited under [the four enumerated statutes] ..., be excluded from participation in, be denied the benefits of, or be subjected to discrimination under, any health program or activity" receiving federal funding, "including ... contracts of insurance." Id.

C. Factual and Procedural History

Schmitt and Mohundro are insured by Kaiser under policies offered through their respective employers.³ They both have been diagnosed with disabling hearing loss. They require treatment other than cochlear implants

, such as outpatient office visits to a licensed audiologist and hearing aids or other durable medical equipment or prosthetic devices. Their Kaiser policies cover cochlear implants and related screening tests but exclude all other programs or treatments for hearing loss and hearing care.

In October 2017, Schmitt and Mohundro filed this class action against Kaiser, asserting a single claim under the ACA.⁴ They alleged that Kaiser's exclusion of all treatments for hearing loss other than cochlear implants

discriminates against putative class members on the basis of their disability in violation of section 1557. The district court granted Kaiser's motion to dismiss their second amended complaint for failure to state a claim and entered judgment.

The district court concluded that "insurers have discretion" over "the scope of benefits provided in the first instance" so long as they "provide [the] benefits offered in a non-discriminatory manner." It therefore ruled that Schmitt and Mohundro's allegations "do not ... give rise to a...