United States District Court, C.D. California
Rebecca Morris, et al.
Blue Shield of California, et al.
Present: The Honorable JOHN A. KRONSTADT, UNITED STATES
CIVIL MINUTES - GENERAL
(IN CHAMBERS) ORDER RE PLAINTIFF'S MOTION FOR REMAND
(Dkt. 26); DEFENDANT'S MOTION TO DISMISS FIRST AMENDED
COMPLAINT (Dkt. 35)
1, 2016, Rebecca Morris and Becky Ebenkamp (collectively,
“Plaintiffs”) filed this putative class action in
the Los Angeles Superior Court against Blue Shield of
California (“Defendant”) on behalf of themselves
and all similarly situated Blue Shield subscribers who are
residents of California. Complaint, Dkt. 1-1. The operative
First Amended Complaint (“FAC”) advances four
causes of action: (1) violation of Cal. Bus. & Prof. Code
§§ 17200 et seq., (“UCL”) through
unlawful activity; (2) violation of the UCL through unfair
activity; (3) Violation of the UCL through fraudulent
activity; and (4) unjust enrichment. Id. Each of
these causes of action is premised on public statements made
by Defendant. Dkt. 30.
August 8, 2016, Defendant timely removed the action pursuant
to 28 U.S.C. § 1441(a). Notice of Removal, Dkt. 1 at 2.
On September 16, 2016, Plaintiffs filed a Motion to Remand.
Dkt. 26. Plaintiffs filed the FAC on September 28, 2016. Dkt.
30. Defendant filed an Opposition to Plaintiffs' Motion
to Remand on October 7, 2016. “Opposition to Remand,
” Dkt. 32. Plaintiffs filed a Reply on October 14,
2016. Dkt. 34.Defendant filed a Motion to Dismiss the FAC on
October 1, 2016. Dkt. 35. Plaintiffs opposed that motion on
November 7, 2016. Dkt. 42. Defendant replied on November 14,
2016. Dkt. 43. On April 26, 2017, the parties filed a joint
request for status conference (“Joint Request”
(Dkt. 50)), seeking to address the current status of the
motions were taken under submission on November 16, 2016,
pursuant to Local Rule 7.15. Dkt. 44. For the reasons stated
in this Order, the Motion to Remand is DENIED and the Motion
to Dismiss is GRANTED without leave to amend.
Factual and Procedural Background
are citizens of California. Dkt. 30 ¶¶ 21-25.
Defendant is a health insurance provider based in California
that does business throughout the United States. Id.
¶ 27. Plaintiffs have been enrolled in Blue Shield
health insurance plans since 2014. Id. ¶¶
Patient Protection and Affordable Care Act
(“ACA”), Pub. L. No. 111-148, 124 Stat. 119
(2010), which is codified as Section 2718 of the Public
Health Service Act, requires insurers that provide coverage
to individuals to provide pro rata rebates to their insureds
under certain circumstances. 42 U.S.C. § 300gg-18. The
rebates are required when an insurer spends less than 80% of
the “total amount of premium revenue” on
“incurred claims” and “activities that
improve health care quality.” Id. The
percentage of premium revenue that an insurer spends on
health care and quality improvement activities is deemed its
Medical Loss Ratio (“MLR”). Id. The MLR
is calculated based on data relating to a three-year period:
the year being reported and the two prior years.
Id.; 45 C.F.R. § 158.220(b).
calculating the MLR, the numerator is the insurer's
“incurred claims, ” which is the sum of the
amount of the “direct claims” paid to or received
by providers, and the amount spent on health care and quality
improvement activities. The denominator is the amount paid to
the insurer in “premium revenue, ” which consists
of all amounts paid by enrollees or subscribers for their
coverage. These requirements are set forth in the regulations
of the Department of Health and Human Services
(“DHHS”). 45 C.F.R. §§ 158.140(a),
158.221, 158.30, and Cal. Code Reg. §1300.67.003(b), 45
C.F.R. § 158.140(b)(3).
year, DHHS requires insurers to complete an “MLR
Report.” Cal. Code Reg. §1300.67.003. The MLR
Report includes the calculation of the MLR for that year.
Id. An MLR Report is also filed annually with
California's Department of Managed Health Care
(“DMHC”). Id. In completing the MLR
Report, an insurer is required to enter on Line 2.6 of Part
1, “any amount excluded from claims for MLR purposes
that are normally included in claims for financial statement
Settlement Agreement with DMHC and Calculation of 2014 MLR
2014, Defendant entered into a settlement agreement with the
DMHC, under which it repaid more than $38, 000 to certain
enrollees as “claims adjustments.” Ex. A. to FAC,
Dkt. 30-1 at 6 (Settlement Agreement). The Settlement
Agreement states that in 2014, Defendant's Provider
Directory incorrectly listed certain healthcare providers as
participating in the networks that Defendant offered to its
individual market enrollees. Id. ¶¶ 13-21.
As a result, certain enrollees had sought and received
medical care from the identified providers, but had to pay
more out-of-pocket for that care than they would have paid
for services provided by physicians within Defendant's
covered network. Id. The Settlement Agreement
required Defendant to reimburse insureds for these additional
expenses. Id. at 8. It acknowledges that Defendant
paid more than $38 million in “claims
adjustments” between June 2014 and June 2015, as well
as other amounts prior to and after that time period.
Id. ¶ 21, Plaintiffs contend that Defendant
erroneously classified the payments made pursuant to the
Settlement Agreement as “incurred claims” when it
calculated its MLR for 2014. The FAC alleges that, as a
result of this miscalculation, the numerator for the 2014 MLR
calculation was overstated. This in turn resulted in smaller
rebates to Plaintiffs. The allegations with respect to the
miscalculation of the numerator are based on the actuarial
memorandum that accompanied Defendant's 2016 filing with
respect to individual market rates. That memorandum
identified $44, 596, 201 of the amount paid in claims in 2014
as “payment errors, ” and stated that it was not
expected that these errors would be repeated in 2016. Dkt. 30
¶ 11. Defendant states that this $44, 596, 201
“payment error” amount included the payments made
pursuant to the Settlement Agreement. Dkt. 30 ¶ 11.
alleges that, rather than including the amounts paid pursuant
to the Settlement Agreement in the calculation of incurred
claims, Defendant should have included these amounts in the
figure on Line 2.6 of Part 1 of the MLR Report. As noted,
Line 2.6 is reserved for “any amount excluded from
claims for MLR purposes that are normally included in claims
for financial statement purposes.” In Defendant's
2014 form, this line was blank. Plaintiffs allege that it
should have included the amounts paid pursuant to the
Settlement Agreement, because they were “payment
September 30 of 2015, Ebenkamp received an MLR rebate check
from Defendant in the amount of $174.94. Dkt. 30 ¶ 26.
In November 2015, Morris received an MLR rebate check from
Defendant in the amount of $118.72. Id. ¶ 23.
Plaintiffs seek damages of $34, 941, 646 on behalf of all
similarly situated insureds. This amount is the alleged
difference between the total amount of all MLR rebates that
were paid, and the amount that should have been paid.
Id. ¶ 44.
Motion to Remand
removed this action based on jurisdiction pursuant to 28
U.S.C. § 1441. It claims that there is federal question
jurisdiction under 28 ...