Judge to Consider $12.9 Million Anthem Settlement Over Denied Residential Mental Health Coverage

On Monday morning in a Brooklyn federal courtroom, a judge is set to decide whether one of the nation’s largest health insurers can resolve allegations that it improperly denied coverage for residential mental health and addiction treatment with a $12.9 million settlement and no admission of wrongdoing.

The proposed deal would end a six-year class-action lawsuit accusing Anthem Inc., now known as Elevance Health Inc., of using internal “medical necessity” guidelines that were more restrictive than accepted standards of care and more stringent than the company’s rules for comparable medical and surgical treatment.

If approved, the agreement in Collins et al. v. Anthem, Inc., et al., Case No. 2:20-cv-01969, would send at least $100 to nearly 19,000 people nationwide whose requests for residential behavioral health care were denied between 2017 and 2025, and offer partial reimbursement to families who paid out of pocket for that care.

The case, pending in the U.S. District Court for the Eastern District of New York, offers a detailed look at how internal coverage criteria can shape access to intensive mental health services at a time when the United States continues to grapple with high rates of depression, suicide and substance use disorders.

Allegations of overly strict guidelines

The lawsuit was filed in April 2020 on behalf of health plan members who were denied coverage for residential treatment for mental health or substance use disorders. The plaintiffs are members of employer-sponsored plans governed by the Employee Retirement Income Security Act of 1974, or ERISA, and administered by Anthem.

They allege Anthem and its utilization management arm, Anthem UM Services Inc., relied on a set of “Challenged Guidelines” — including Anthem Clinical Utilization Management Guidelines and Milliman Care Guidelines for residential behavioral health — that departed from generally accepted standards.

According to court-approved notices sent to class members, the plaintiffs contend Anthem violated ERISA “by creating and adopting medical necessity criteria … that were more restrictive than generally accepted standards of care and the terms of the Class Members’ health benefit plans, and by using the Challenged Guidelines to deny the Class Members’ coverage requests,” rendering those denials “arbitrary and capricious.”

They also assert violations of the federal Mental Health Parity and Addiction Equity Act of 2008. That law requires that treatment limits and medical management techniques for mental health and substance use disorder benefits be no more restrictive than those for medical and surgical benefits.

The plaintiffs allege Anthem’s residential behavioral health guidelines “were more restrictive than the medical necessity criteria Anthem used to evaluate comparable services to treat medical and surgical conditions,” in violation of the parity law.

The affected class includes members of ERISA-governed plans whose requests for residential treatment services for a behavioral health disorder were denied for lack of medical necessity on or after April 29, 2017, based on the challenged criteria, and whose denials were not reversed on administrative appeal. The class period runs through April 30, 2025.

Residential treatment is among the most intensive — and costly — levels of behavioral health care. Stays can last weeks or months and often run tens of thousands of dollars, putting families in a difficult position if coverage is denied.

Some class members allegedly went without recommended residential care after Anthem refused to pay. Others moved forward with treatment and assumed the financial burden themselves.

Anthem denies wrongdoing

Anthem, which rebranded its corporate parent as Elevance Health in 2022, has consistently rejected the lawsuit’s claims.

In the settlement notice, 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.”

Elevance operates Blue Cross and Blue Shield-branded plans in 14 states and other health plans nationwide. In announcing the rebrand, President and CEO Gail Boudreaux said the company’s purpose was “elevating whole health and advancing health beyond healthcare,” and that “improving health means more than just treating what ails us. We must address whole health and the physical, behavioral, and social drivers that impact it.”

The lawsuit, which centers on access to high-level behavioral health care, covers many of the same years Elevance has promoted that “whole health” message.

Anthem agreed to the settlement after the court in March 2024 certified a class under Federal Rule of Civil Procedure 23(b)(2), a step that increased the potential stakes of continued litigation. In public materials, the company has said it chose to settle to avoid the expense and uncertainty of trial.

What the settlement would provide

Under the proposed agreement, Anthem would pay $12.875 million into a common fund. From that amount, the court will be asked to approve payments for settlement administration, attorneys’ fees and expenses, and service awards for the named plaintiffs.

Class counsel are seeking up to one-third of the fund — approximately $4.29 million — in attorneys’ fees, plus litigation costs. Each of the four class representatives could receive up to $10,000 in incentive awards, subject to court approval.

The remaining money would be divided between a reimbursement pool and nominal payments.

“All Class Members will receive either a pro rata share of the Out-of-Pocket Reimbursement Fund … or a Nominal Payment of at least $100.00,” the settlement website states.

To receive more than the $100 minimum, class members had to submit a claim form by Jan. 20 documenting out-of-pocket payments for a “Recognized RTC Treatment Episode” — a residential treatment stay beginning within 14 days after a qualifying denial. The settlement caps reimbursable treatment at 365 days per episode. Valid claims will be paid on a pro rata basis from the reimbursement fund, meaning families are unlikely to recover the full amounts they paid.

Class members who did not file claims, or whose claims are not approved, will receive the nominal payment as long as they did not opt out.

In exchange, the settlement would release Anthem, Elevance and related entities from “all claims that were or could have been asserted in the litigation” concerning denials of residential treatment for lack of medical necessity during the class period. The release covers both known and unknown claims tied to those denials.

Public-facing materials describing the settlement emphasize monetary relief and do not highlight any specific injunctive provisions requiring Anthem to change its current coverage criteria. Any practice changes the company has made during or after the litigation have not been detailed in the consumer notices.

A broader fight over mental health parity

The Collins case arrives amid increased attention from regulators, advocates and courts to whether parity laws are being enforced in everyday insurance decisions.

The Department of Labor, Department of Health and Human Services and Treasury Department have stepped up oversight of the Mental Health Parity and Addiction Equity Act in recent years, focusing heavily on nonquantitative treatment limitations such as prior authorization rules, medical necessity standards and utilization review.

At the same time, business and employer groups have challenged new parity regulations as overly burdensome and beyond what the statute allows, creating uncertainty over how far regulators can go.

Collins is also part of a broader wave of litigation targeting internal behavioral health coverage criteria. In Wit v. United Behavioral Health, for example, a federal district judge in California found that UBH’s guidelines for behavioral health treatment were inconsistent with generally accepted standards of care and with plan terms. The U.S. Court of Appeals for the 9th Circuit later narrowed the remedies available, signaling caution about sweeping orders requiring reprocessing of large numbers of claims.

Against that backdrop, both sides in Collins faced risk in pressing ahead. A trial could have produced a precedent on how strictly insurers may draw their internal guidelines, but also would have invited years of appeals.

Judge to weigh whether deal is “fair, reasonable and adequate”

At Monday’s hearing in Brooklyn, Magistrate Judge Steven I. Locke is scheduled to consider whether the settlement is “fair, reasonable and adequate” for the class — the standard under federal civil procedure rules for approving class-action deals.

In assessing the agreement, the court is expected to weigh the strength of the plaintiffs’ case against the risks and costs of further litigation, the amount and distribution of relief, and the reaction of class members, including any objections.

If Judge Locke grants final approval and any appeals are resolved, the settlement will become effective and payouts will proceed according to a schedule set by the court and the settlement administrator. If approval is denied, the parties could attempt to revise the agreement or return to litigation.

Whatever the outcome, the case underscores how much hinges on technical, often unseen coverage rules in determining whether people with serious mental illness or addiction can access intensive care. For thousands of Anthem plan members whose residential stays were deemed “not medically necessary,” the question before the court is whether this settlement is an adequate measure of accountability and relief.