Anthem to Pay $12.9 Million to Settle Claims It Wrongly Denied Residential Mental Health Care

For years, families who sent children to residential programs for severe depression, addiction or eating disorders received the same message from their insurer: the care was not “medically necessary.” Now nearly 19,000 of those patients are in line for checks after Anthem, one of the country’s largest health insurers, agreed to pay $12.875 million to settle claims that it used overly restrictive rules to deny mental health and substance use treatment.

Settlement awaits final approval

The proposed nationwide class-action settlement, in a case pending in federal court in Brooklyn, would resolve allegations that Anthem, now operating under the name Elevance Health, violated federal benefits law and mental health parity requirements when it refused to cover residential treatment from 2017 through early 2025.

The agreement, which received preliminary approval in September, is not yet final. A judge in the U.S. District Court for the Eastern District of New York has scheduled a fairness hearing for Jan. 26 in Brooklyn. If the deal is approved and any appeals are resolved, payments are expected to go out later this year.

What the lawsuit alleges

At the center of the case, Collins et al. v. Anthem Inc. et al., are Anthem’s internal “medical necessity” guidelines — the criteria its utilization management arm used to decide when residential care was covered.

The plaintiffs, a group of health plan members from several states, allege Anthem breached its fiduciary duties under the Employee Retirement Income Security Act, or ERISA, and violated the federal Mental Health Parity and Addiction Equity Act by adopting and applying what they call “Challenged Guidelines” for residential behavioral health treatment.

Those guidelines, including Anthem’s own Clinical Utilization Management Guidelines and a set of criteria licensed from Milliman, were “more restrictive than generally accepted standards of medical practice,” the plaintiffs say, and more stringent than the rules applied to comparable medical and surgical care.

“Plaintiffs allege that Anthem violated the Parity Act because the Challenged Guidelines were more restrictive than the medical necessity criteria Anthem used to evaluate comparable services to treat medical and surgical conditions,” the court‑approved settlement notice states.

Anthem and its utilization management subsidiary, Anthem UM Services Inc., deny any wrongdoing.

In materials distributed to class members, the company “denies any wrongdoing or liability for the claims alleged and asserts that it properly utilized appropriate guidelines to review requests for coverage for residential treatment during the period at issue in this case.” Anthem agreed to the settlement “to avoid the expense and uncertainty of litigation,” the notice says.

Who is included

The case was filed on April 29, 2020, and assigned to U.S. District Judge Frederic Block, with U.S. Magistrate Judge Steven I. Locke handling settlement proceedings. In March 2024, the court certified a nationwide class of members in employer-sponsored health plans governed by ERISA whose requests for residential treatment were denied based on lack of medical necessity using the challenged guidelines and were not overturned on appeal.

According to settlement filings, the class includes about 18,756 people whose claims for residential treatment for a mental health or substance use disorder were denied between April 29, 2017, and April 30, 2025. The plans at issue generally promised to cover services consistent with “generally accepted standards of medical practice.”

Residential treatment — long-term, 24‑hour programs for serious psychiatric and substance use conditions — is among the most expensive forms of behavioral health care, often costing tens of thousands of dollars a month. When coverage is denied, families can face six-figure bills or pull loved ones out of care early.

How payments would work

Although the dollar figure in the settlement is significant, most class members will receive relatively modest payments.

Under the proposed distribution plan, the $12.875 million fund would first be used to pay settlement administration costs, estimated at at least $250,000; attorneys’ fees of up to one‑third of the fund (about $4.29 million), plus litigation expenses; and service awards of up to $10,000 each for the four named plaintiffs who brought the case.

The agreement also sets aside enough money to guarantee every class member at least a $100 “nominal payment.” That payment would be sent automatically to class members who do not opt out and who do not submit a claim for reimbursement, based on Anthem’s records. No claim form is required to receive the $100 check.

The remainder of the fund would be used to reimburse out-of-pocket expenses for those who can document that they paid for residential treatment after a qualifying denial. To receive that reimbursement, class members must submit a claim form with proof of payment by Jan. 20.

Eligible claims include residential treatment stays that began no later than 14 days after an Anthem denial, or were already underway when the denial occurred, and are capped at 365 days of treatment per episode. The available reimbursement money will be divided among approved claimants on a proportional basis, depending on how many people file and the size of their documented bills.

Settlement materials caution that “it is unlikely that the Out-of-Pocket Reimbursement Fund will be sufficient to provide full reimbursement” of all out-of-pocket costs. Class members who receive reimbursement would not also receive the $100 nominal payment.

The opt‑out and objection deadline passed on Dec. 19. Class members who filed opt‑out notices but have since changed their minds may still rejoin the settlement by submitting a retraction by Jan. 21, according to the settlement administrator.

Why the case matters

The Collins case is part of a broader push to enforce mental health parity requirements, more than a decade after Congress barred health plans from imposing stricter limits on mental health and substance use treatment than on medical and surgical care.

Under the Parity Act, insurers not only must align deductibles and visit limits; they also must ensure that less visible tools such as prior authorization rules and medical necessity criteria are no more stringent for behavioral health than for physical health. Advocates say those “nonquantitative treatment limits” are where disparities often arise.

“The real discrimination is in the back office,” said one mental health policy attorney who is not involved in the case but has followed similar litigation. “It’s in the guidelines and internal rules that the public never sees.”

Collins echoes themes from earlier cases, including a high‑profile lawsuit against United Behavioral Health in federal court in California. In that case, a trial judge found that United’s guidelines for mental health and substance use treatment were “unreasonable” and too focused on cost, although an appeals court later reversed on legal grounds related to the standard of review and the scope of relief.

The Anthem settlement does not include an admission that its guidelines were improper, and public summaries emphasize financial relief rather than specific changes to the company’s criteria. The full settlement agreement, filed with the court, governs any nonmonetary terms.

Elevance Health, based in Indianapolis, is one of the largest U.S. health insurers and the biggest for‑profit operator in the Blue Cross Blue Shield network, covering more than 45 million people across commercial, Medicaid and Medicare plans. The company, which rebranded from Anthem Inc. in 2022, reported roughly $157 billion in revenue in 2022 and has told investors it faces pressure from rising medical costs, particularly in government‑sponsored plans.

As regulators at the Department of Labor and the Department of Health and Human Services increase parity audits and enforcement, private class actions like Collins continue to shape how insurers structure and apply their medical necessity rules.

For families who fought to keep children in residential care, the settlement may offer some reimbursement and a measure of closure, even if it does not fully repay what was spent.

If the court approves the deal later this month, the paperwork many families once received explaining that care was “not medically necessary” may produce something rarely seen at the end of a coverage dispute: a check in the mail.