Rea v. Blue Shield of California

Filed 7/9/14 Unmodified version attached
CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION ONE

MARISSA REA et al., B244314

Plaintiffs and Appellants, (Los Angeles County
Super. Ct. No. BC468900)
v.
ORDER MODIFYING OPINION
BLUE SHIELD OF CALIFORNIA, AND DENYING REHEARING
[NO CHANGE IN JUDGMENT]
Defendant and Respondent.

THE COURT:
It is ordered that the opinion filed herein on June 10, 2014, be modified as follows:
1. On page 21, the first line of first full paragraph, the words “Blue Cross” are
deleted and replaced with the words “Blue Shield.”
2. On page 23, line six of the second full paragraph, the word “DMHC” is deleted
and replaced with the words “Department of Insurance.”
There is no change in the judgment.
The petition for rehearing is denied.

____________________________________________________________________
ROTHSCHILD, Acting P .J. JOHNSON, J. MILLER, J.1

1 Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant
to article VI, section 6 of the California Constitution.
Filed 6/10/14 Unmodified version
CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION ONE

MARISSA REA et al., B244314

Plaintiffs and Appellants, (Los Angeles County
Super. Ct. No. BC468900)
v.

BLUE SHIELD OF CALIFORNIA,

Defendant and Respondent.

APPEAL from a judgment of the Superior Court of Los Angeles County,
Anthony J. Mohr, Judge. Reversed.
Kantor & Kantor, Lisa S. Kantor, J. David Oswalt and Elizabeth K. Green for
Plaintiffs and Appellants.
Law Offices of Daniel H. Willick and Daniel H. Willick for Honorable Helen
MacLeod Thomson and California Psychiatric Association as Amici Curiae on behalf of
Plaintiffs and Appellants.
Disability Rights California, Melinda Bird, Connie Huang Chu; Western Center on
Law and Poverty, Richard A. Rothschild and Mona Tawatao for Mental Health America
of California, Mental Health Advocacy Services, Inc., Alliance of California Autism
Organizations, Autism Deserves Equal Coverage, Disability Rights Education and
Defense Fund, Inc., Disability Rights Legal Center and National Health Law Programs as
Amici Curiae on behalf of Plaintiffs and Appellants.
 California Department of Insurance, Adam M. Cole and Teresa R. Campbell for
California Insurance Commissioner Dave Jones as Amicus Curiae for Plaintiffs and
Appellants.
Law Offices of Russell G. Petti and Russell G. Petti for International Association
of Eating Disorders Professionals, Eating Disorder Coalition, Binge Eating Disorder
Association and Residential Eating Disorder Coalition as Amici Curiae for Plaintiffs and
Appellants.
Manatt, Phelps & Phillips, Gregory N. Pimstone, Adam Pines and Joanna S.
McCallum for Defendant and Respondent.
Crowell & Moring, William A. Helvestine and David D. Johnson for California
Association of Health Plans as Amicus Curiae on behalf of Defendant and Respondent.
_______________________________
In 1999, the Legislature enacted the California Mental Health Parity Act (Health &
Saf. Code, § 1374.72)2 (Parity Act) to address the imbalance between medical coverage
for physical illnesses and mental illnesses. The Parity Act mandated that every health
care service plan contract “provide coverage for the diagnosis and medically necessary
treatment of severe mental illnesses . . . under the same terms and conditions applied to
other medical conditions.” (§ 1374.72, subd. (a).) At issue in this appeal is whether the
Parity Act requires coverage for residential treatment for the eating disorders anorexia
nervosa and bulimia nervosa even where the health plan does not provide coverage. In
Harlick v. Blue Shield of California (2012) 686 F.3d 699 (Harlick), the Ninth Circuit
found that the Parity Act, which requires coverage for all “medically necessary treatment”
for “several mental illnesses” mandated the coverage of residential care treatment for
such eating disorders. The trial court here disagreed, holding that the statutory language
of the Parity Act and the statutory scheme of the Knox-Keene Health Care Service Plan
Act of 1975 (§§ 1340–1399) (Knox-Keene Act) (of which the Parity Act is a part), as

2 All further statutory references are to the Health and Safety Code unless otherwise
indicated.

2
well as the Parity Act’s legislative history, did not support coverage for a treatment not
specifically enumerated in the Parity Act.
Plaintiffs Marissa Rea and Kelly Melachouris, who suffer from eating disorders
and are covered by defendant Blue Shield of California’s health plans, principally argue
on appeal that the Parity Act’s “medically necessary treatment” language must be read
broadly to include residential treatment for the mental illnesses anorexia nervosa and
bulimia because there is no treatment analog in the realm of treatments for physical
illnesses, and thus the trial court’s limited reading of the statute failed to take into account
the Legislature’s goal of achieving parity. Blue Shield counters that nothing in the
statutory language evinces a legislative intent to cover all treatments for mental illness
simply because they are medically necessary; rather, reference must be made to the Knox-
Keene Act of which the Parity Act is a part and which defines required coverage for
physical illnesses to consist of “basic health services.”
We conclude that the Legislature in crafting the Parity Act, which uses broad
statutory language to mandate the provision of medically necessary services for mental
health conditions, recognized that most mental health conditions have a physical basis,
and also recognized the fundamental difference between the most effective treatments of
mental and physical conditions. As a result the Legislature chose to delimit the scope of
the Parity Act’s reach with the concept of “medically necessary” rather than relying on the
Knox-Keene Act’s limiting principle of “basic health services.” We reverse the judgment
of the trial court.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
A. Legal Framework
1. Knox-Keene Act and the Parity Act
In 1975, the Legislature enacted the Knox-Keene Act, which provides the legal
framework for the regulation of California’s individual and group health care plans,
including health maintenance organizations (HMO) and other similarly structured
managed care organizations (MCO). While HMO’s and MCO’s are regulated by the

3
Department of Managed Health Care (DMHC), traditional health insurance companies
are regulated by the Department of Insurance. The express purpose of the Knox-Keene
Act is “to promote the delivery of health and medical care” for persons enrolled in health
care service plans. (§ 1342.) The Knox-Keene Act provides that DMHC “has charge of
the execution of the laws of this state relating to health care service plans and the health
care service plan business including, but not limited to, those laws directing the
department to ensure that health care service plans provide enrollees with access to
quality health care services and protect and promote the interests of enrollees.” (§ 1341,
subd. (a).) Under the Knox-Keene Act, plans must provide their subscribers with “basic
health care services,” which are defined to include physician services, hospital inpatient
services, diagnostic laboratory services, home health services, and preventive health
services. (§ 1345, subd. (b).) DMHC’s director is authorized to define the scope of
required basic health care services. (§ 1367, subd. (i).)
In 1999, in enacting the Parity Act, the California Legislature specifically found
that mental illnesses can be reliably diagnosed and treated, and that the treatment of
mental illness was cost effective. Further, most private health insurance policies “provide
coverage for mental illness at levels far below coverage for other physical illnesses.”
(Assem. Bill No. 88 (1999–2000 Reg. Sess.) ch. 534, § 1.) Such coverage limitations
resulted in inadequate treatment of mental illnesses, “relapse and untold suffering,” as
well as increases in homelessness, crime, and resultant demands on the state budget.
(Ibid.)
The three main subdivisions of the Parity Act and its implementing regulation are
the heart of the present debate over the scope of coverage for residential care to treat
eating disorders. The Parity Act provides that, beginning in July 2000, every health plan
providing hospital, medical or surgical coverage must also “provide coverage for the
diagnosis and medically necessary treatment of severe mental illnesses of a person of any
age” as specified in the statute. (§ 1374.72, subd. (a), italics added (hereafter
subdivision (a)).) The statute specifically itemizes the “‘severe mental illnesses’” which

4
must be covered, including “[a]norexia nervosa” and “[b]ulimia.” (§ 1374.72,
subd. (d)(7), (8).)
The Parity Act does not specifically define the term “medically necessary
treatment,” although it does state that “[t]hese benefits include” outpatient services,
inpatient hospital services, partial hospital services, and prescription drugs (if the plan
otherwise covers prescription drugs.) (§ 1374.72, subd. (b) (hereafter subdivision (b).)3
The Parity Act also provides “[t]he terms and conditions applied to the benefits required
by this section, that shall be applied equally to all benefits under the plan contract, shall
include, but not be limited to, the following: [¶] (1) [m]aximum lifetime benefits[;] [¶]
(2) [c]opayments[; and] [¶] (3) [i]ndividual and family deductibles.” (§ 1374.72,
subd. (c) (hereafter subdivision (c).)
The Parity Act’s implementing regulation states, “(a) The mental health services
required for the diagnosis, and treatment of conditions set forth in [] section 1374.72 shall
include, when medically necessary, all health care services required under the Act
including, but not limited to, basic health care services within the meaning of Health and
Safety Code sections 1345(b) and 1367(i), and section 1300.67 of Title 28.” (Cal. Code
Regs., tit. 28, § 1300.74.72, subd. (a) (implementing regulation).)4
2. Harlick v. Blue Shield
On June 4, 2012, in Harlick, supra, 686 F.3d 699, the Ninth Circuit interpreted
these provisions and addressed the issue of whether residential treatment for anorexia
nervosa was covered under Blue Shield’s insurance plan, and if not, whether the Parity

3 Section 14059.5 of the Welfare and Institutions Code, governing public social
services, states “[a] service is ‘medically necessary’ or a ‘medical necessity’ when it is
reasonable and necessary to protect life, to prevent significant illness or significant
disability, or to alleviate severe pain.”
4 Blue Shield is a health care service plan provider and governed by DMHC. (§ 1341,
subd. (a).) Health insurance plans are covered by the Department of Insurance, and the
version of the Parity Act applicable to such plans is found at Insurance Code section
10144.5. There is no regulation parallel to the implementing regulation that implements
Insurance Code section 10144.5.

5
Act nonetheless required coverage.5 Blue Shield’s plan covered inpatient services,
limited outpatient services, office visits, psychological testing, and counseling sessions
for the treatment of mental illnesses. Although the Harlick court held the terms of Blue
Shield’s plan did not cover residential treatment for anorexia nervosa, the court found that
the Parity Act mandated such a level of care. (Id. at pp. 710, 721.)
Harlick, supra, 686 F.3d 699 reasoned that section 1374.72 defined anorexia
nervosa as a “serious mental illness” that was subject to the Parity Act and therefore
subdivision (a) required that “medically necessary treatment” be provided for the
condition. Further, Harlick concluded the four benefits listed in subdivision (b)—
(1) outpatient services; (2) inpatient hospital services; (3) partial hospitalization services;
and (4) prescription drugs, if the plan contract includes coverage for prescription drugs—
were not exhaustive because the language of the implementing regulation stated that the
medically necessary benefits required to be provided included, but was not limited to, the
basic health care services set forth in subdivision (b). (Id. at p. 712.) In addition, the
DMHC had asserted that it was not appropriate to list all services a plan needed to
achieve parity because beyond specifying some of the essential services, “‘it was
sufficient to state that the plans must provide all medically necessary services. To the
extent that certain services are medically necessary, then those services will be
provided.’” (Id. at p. 715, italics omitted.)

5 The Ninth Circuit originally issued its opinion on August 26, 2011. Blue Shield
petitioned for rehearing on the basis that the court’s opinion concluded that there was no
link between the scope of benefits required under the Parity Act and the rest of the Knox-
Keene Act. According to Blue Shield, in reaching this result, the court mistakenly
interpreted the implementing regulation to refer to the Parity Act, not the Knox-Keene
Act (“[t]he mental health services required for the diagnosis, and treatment of conditions
set forth in Health and Safety Code section 1374.72 shall include, when medically
necessary, all health care services required under the Act including, but not limited to,
basic health care services . . . .”). However, elsewhere in the regulations, the “Act” is
specifically defined as the Knox-Keene Act (Cal. Code Regs, tit. 28, § 1300.45,
subd. (a).)

6
 Harlick, supra, 686 F.3d 699 further reasoned that the Knox-Keene Act and the
Parity Act operated in fundamentally different ways: Mandated coverage under the Parity
Act applied to nine specified “severe mental illnesses,” while Knox-Keene Act mandated
coverage for all physical illnesses, whether severe or not; thus, the Parity Act limited
insurer liability by limiting the illnesses to which it applied, while Knox-Keene Act
limited insurer liability by limiting the scope of medically necessary treatments. (Id. at
p. 716.) As a result, “[t]he most reasonable interpretation of the Parity Act and its
implementing regulation is that plans within the scope of the Act must provide coverage
of all ‘medically necessary treatment’ for ‘severe mental illnesses’ under the same
financial terms as those applied to physical illnesses.” (Id. at p. 719.)
The dissent in Harlick, supra, 686 F.3d 699 observed that the text of the Parity
Act’s implementing regulation that “‘services required . . . shall include, when medically
necessary, all health care services’” was modified by the language of the second portion
of that sentence, “‘required under the [Knox-Keene] Act.’” (Id. at p. 723 (conc. & dis.
opn. of Smith, J.).) As a result, the dissent concluded the second portion of the
implementing regulation’s text limited the scope of the health care services that must be
provided by the Parity Act to the types of benefits already provided under the Knox-
Keene Act, and the Parity Act could thus not be used to enlarge the scope of the Knox-
Keene Act. “It is undisputed that the Knox-Keene Act does not require all medically
necessary treatment for physical illnesses. [Citation.] Thus, viewed in this light, the
‘when medically necessary’ language operates as a necessary (rather than sufficient)
condition on the type of benefits that must be provided. In other words, plans must
provide the type of benefits the Knox-Keene Act provides when they are medically
necessary for mental health.” (Id. at pp. 723–724.) The dissent found the majority
ignored this modifying language and ran afoul of the statutory construction rule that no
words should be treated as surplusage. (Id. at p. 724.) Further, the dissent found that the
“including, but not limited to” language in the implementing regulation on which the
majority relied did not contradict the dissent’s interpretation of the Parity Act.

7
“California courts have explained that, while the phrase ‘including, but not limited to’ is
admittedly a ‘phrase of enlargement,’ this phrase is ‘not a grant of carte blanche that
permits all actions without restriction,’ and it cannot be used to create an ‘unreasonable
expansion of the legislature’s words. . . .’ [Citations.] Thus, the context surrounding the
‘including, but not limited to’ phrase cannot be ignored when determining the extent of
the ‘enlarging’ effect this phrase has on benefits that [the implementing regulation]
requires insurance companies to provide.” (Ibid.)
B. Procedural History
1. Plaintiff’s First Amended Complaint (FAC)
Plaintiffs were enrolled in Blue Shield health plans that cover the treatment of
mental illness, but exclude coverage for residential treatment.6 Both plaintiffs suffer
from eating disorders (either anorexia nervosa or bulimia nervosa), and have been advised
by their treating medical professionals that residential treatment for their eating disorders
was medically necessary and they meet the criteria for such treatment.
The FAC alleged that eating disorders have the highest mortality rate of any
mental illness, and can lead to medical complications including cardiac arrhythmia, heart
failure, kidney stones and kidney failure, cognitive impairment, osteoporosis, and
infertility. Suicide, depression, and anxiety are common in eating disorder sufferers. One
of the most effective therapies for treating eating disorders is residential treatment and is
widely accepted in the medical community and recognized by the American Psychiatric
Association as a critical level of care. Residential treatment entails less intense medical
monitoring than hospital-based care, and lasts several months. Residential treatment is
necessary where the individual does not make progress on an out-patient basis.

6 The plans defined residential care as “services provided in a facility or
freestanding residential treatment center that provides overnight/extended stay services
for Members who do not qualify for acute care or skilled nursing care.” The treatment
centers at which plaintiffs sought care provided, among other things, room and board,
counseling, family education, nutritional education, yoga, meditation, menu planning, and
recreational activities.

8
Treatment includes 24-hour monitoring, group therapy, individual therapy, dietary
consultation and education, therapeutic meals, and pharmaceutical treatment.
Plaintiffs sought class certification on behalf of themselves and others similarly
situated who had been denied residential treatment under their health insurance policies or
health care service plans for eating disorders in violation of the Parity Act. Plaintiffs’
FAC stated claims for breach of contract, breach of the covenant of good faith and fair
dealing, declaratory relief, unfair business practices under Business and Professions Code
section 17200 et seq., and violation of the Unruh Civil Rights Act (Civ. Code, § 51).
2. Blue Shield’s Demurrer
Blue Shield demurred to the FAC, principally arguing that plaintiffs’ interpretation
of the Parity Act requiring residential treatment for eating disorders because such
treatment was “medically necessary” would entail the provision of services not otherwise
mandated under the Knox-Keene Act as basic health care services; as a result, plaintiffs’
interpretation required health plans to provide broader coverage for mental illness than
for physical illness. Instead, subdivision (b)’s four types of care—which did not include
residential care—were the minimum required under the Parity Act; for that reason, not all
medically necessary care was required for severe mental illness, but only that medically
necessary care as set forth in subdivision (b). As a result, plaintiffs mistakenly interpreted
the implementing regulation’s reference to “all health care services required under the
Act” as referring to the Parity Act, not the Knox-Keene Act. In support of its demurrer,
Blue Shield requested judicial notice of the legislative history of the Parity Act.
Plaintiffs’ opposition asserted the Harlick, supra, 686 F.3d 699 court correctly
found the Parity Act’s mandated equality of coverage between physical and mental
illnesses required that Blue Shield cover all medically necessary treatment of the
enumerated mental illnesses because mental illnesses could not be treated the same way
as physical illnesses. Plaintiffs pointed out that the concept of “medically necessary” (or
“medical necessity”) was the lynchpin of the Knox-Keene Act and this commonly
understood term meant that the Parity Act required the full breadth of coverage to mental

9
health patients. Moreover, the legislative history demonstrated the Parity Act was
intended to eliminate the disparity between coverage for mental and physical illnesses.
Plaintiffs requested judicial notice of, among other things, the regulatory history of the
implementing regulation.
In reply, Blue Shield reasserted that the Legislature intended to achieve parity in
coverage, not to mandate all medically necessary care for mental illness. In that regard, it
argued that the Parity Act did not require coverage for all medically necessary services,
and did not limit the application of the “terms and conditions” to mental illnesses to those
that are financial in nature; to find otherwise would unduly expand the scope of coverage.
3. Trial Court Ruling
The trial court sustained Blue Shield’s demurrer without leave to amend. The trial
court found that the Parity Act was part of the Knox-Keene Act; the Knox-Keene Act
defined “basic health care services” in section 1345, subdivision (b) to include seven
enumerated items. The trial court declined to follow Harlick, supra, 686 F.3d 699 for
several reasons. First, in Harlick, both parties agreed “that the phrase ‘terms and
conditions’ refers to monetary conditions, such as copayments and deductibles,” while
here, the parties did not agree on this definition. The trial court observed, “[w]ithout
question, the three enumerated ‘terms and conditions’ in subsection (c) involve financial
subjects, but the use of ‘including but not limited to’ implies that the [L]egislature did not
intend to so limit the conditions.” Thus, the Legislature intended to refer to more than the
three enumerated terms and conditions, and that they need not be limited to financial
points.
As a result, as Blue Shield pointed out, if “terms and conditions” included only the
financial limitations listed in subdivision (c), then “‘the plan is not allowed to enforce the
numerous substantive (i.e. nonfinancial) terms and conditions that are generally
applicable to all benefits.’” Thus, for example, the plan would be required to cover the
following for mental health conditions, even when not covered for physical conditions:
services performed in a hospital by interns or others in training, services performed by a

10
close relative who lives with the plan member, drugs not approved by the FDA, services
for vocational and other forms of therapy, services by an unlicensed individual, services
covered by workers’ compensation, etc. The trial court concluded such expanded
coverage was not the result intended by a statute designed to achieve parity.
Second, the trial court found the phrase “include” in subdivision (b) was not
intended to mean “including but not limited to.” “It is nearly impossible to conclude that
whoever drafted this statute meant for the former to include the latter when, in the same
statute, the drafters used both terms.” The trial court observed that a recognized rule of
statutory construction posited that in such case, the use of a different term or provision in
another part of the same statute means that the Legislature intended to convey a different
meaning. Assuming the two phrases were not synonymous, the plain meaning rule meant
that “include” encompassed less than “including but not limited to” and as a result, given
that the list of mental illnesses in subdivision (c) was exhaustive, the Legislature could
not have intended to mean subdivision (b) was a nonexhaustive list.7
Third, Harlick, supra, 686 F.3d 699 had assumed that the implementing regulation
referred to the Knox-Keene Act, and not the Parity Act, yet Harlick’s interpretation
assumed that the Knox-Keene Act did not constrain the Parity Act although the
implementing regulation stated that the Parity Act should be determined by reference to
the Knox-Keene Act—which in turn did not require coverage for all medically necessarily

7 The trial court noted that two unpublished federal district court decisions agreed
with this conclusion: Wayne W. v. Blue Cross of California (C.D.Utah, Nov. 1, 2007
No. 1:07-CV-00035-PGC, nonpub. opn.) and Daniel F. v. Blue Shield of California
(N.D.Cal., Mar. 3, 2011 No. C 09–2037 PH, nonpub. opn.). Recently, an enrollee in a
federal employee health insurance plan administered in California by Blue Shield sought
and was denied coverage for residential treatment for an eating disorder and asserted that
the plan violated the Parity Act. The United States District Court for the Northern
District of California held that her claims were barred by sovereign immunity and the
Parity Act was expressly preempted by the Federal Employees Health Benefits Act (5
U.S.C. § 8901 et seq.) (FEHBA). (Brazil v. Office of Personnel Management (N.D.Cal.
Mar. 28, 2014 No. 12-CV-02898-WAO) [2014 WL 1309935] (Brazil).) Brazil has no
application here because the Blue Shield plan at issue is not governed by FEHBA.

11
treatment. The trial court noted that Harlick ignored the fact that “including but not
limited to” was necessarily circumscribed by the language “all health care services
required under the Knox-Keene Act.” Thus, the “including but not limited to” language
could not expand beyond the universe of the Knox-Keene Act.
Fourth, Harlick, supra, 686 F.3d 699 observed that subdivision (b)(4) of the Parity
Act states that plans must cover “[p]rescription drugs, if the plan contract includes
coverage for prescription drugs.” The Parity Act thus specifies that a plan need not cover
prescription drugs for severe mental illnesses, even if they are medically necessary, unless
the plan covers such drugs for physical illnesses. As a result, the Parity Act’s specific
carve-out from the coverage mandate for medically necessary prescription drugs indicates
that all other benefits for severe mental illnesses must be provided whenever they are
medically necessary, whether or not such benefits are covered for physical illnesses. The
trial court found, “This portion of Harlick raises a valid point—one of the few which
weigh in favor of Plaintiffs’ position. It would be a strange move, indeed, for the
[L]egislature to specifically indicate that all medically necessary prescription drugs need
not be covered if it did not intend the [Parity Act] to cover all medically necessary
treatment, generally. However, this singular point in favor of Plaintiffs is more than
outweighed by the considerations noted above and continued below.”
Fifth, the trial court turned to DHMC’s interpretation of the Parity Act that in
crafting the statute, it was not appropriate to list all services required and that it was
sufficient to specify that “medically necessary” services be provided and concluded that
DHMC’s position was necessarily qualified by the limitation that such services be
provided in parity with physical conditions. During the comment period on the
regulation, DHMC rejected Blue Shield’s request that the statute be rephrased to state that
not all medically necessary treatment was covered and DMHC’s response that it need not
enumerate specific rehabilitative services because all medically necessary treatment was
covered does not undermine the requirement that parity be maintained. However, DMHC
rejected this provision, not because it disagreed with Blue Shield, but because DMHC

12
viewed the regulation as already clearly stating what Blue Shield was requesting. “Given
that the statute requires parity in coverage, . . . the regulation requires only that health
plans provide mental health coverage in parity with what the plan provides for other
medical conditions. The draft regulation language makes clear that plans cannot limit
mental health coverage to anything less than what is medically necessary and on parity
with other health care provided by the plan.”
The trial court turned to the statutory scheme and noted that in several instances,
the Knox-Keene Act had specific requirements: For example, plans that offer hospital,
medical, or surgical expenses on a group basis must offer certain equipment for the
management and treatment of diabetes (§ 1367.51) and osteoporosis (§ 1367.67), AIDS
vaccines (§ 1367.45) and benefits for comprehensive preventive care of children
(§ 1367.3); plans covering prescription drugs must cover inhaler spacers for the
management and treatment of pediatric asthma (§ 1367.06). The court noted that in
“plac[ing] these focused mandates next to the fuzzy, confusing language of the [Parity
Act], . . . it becomes difficult to conclude that the [Parity Act] is a comprehensive
mandate for mental health treatment modalities ranging beyond what a policy provides for
physical conditions. . . . This is not what our [L]egislature intended. If they did, one
wonders why, in October 2011, they enacted [section] 1374.73. That statute requires
health plans to provide coverage for behavioral treatment for autism. Yet autism is listed
in the [Parity Act] [section] 1374.72[, subdivision] (d)(7), which means, if Plaintiffs are
right, plans would already have to include behavioral treatment.”
DISCUSSION
I. Standard of Review
A. Demurrer
On appeal from a judgment of dismissal following an order sustaining a demurrer,
“we examine the complaint de novo to determine whether it alleges facts sufficient to
state a cause of action under any legal theory, such facts being assumed true for this
purpose.” (McCall v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415.) We assume

13
the truth of the properly pleaded factual allegations, facts that can be reasonably inferred
from those pleaded, and facts of which judicial notice can be taken. (Schifando v. City of
Los Angeles (2003) 31 Cal.4th 1074, 1081.) We review the trial court’s denial of leave to
amend for an abuse of discretion. (Hernandez v. City of Pomona (1996) 49 Cal.App.4th
1492, 1497.) “When a demurrer is sustained without leave to amend, we determine
whether there is a reasonable probability that the defect can be cured by amendment.
[Citation.]” (V.C. v. Los Angeles Unified School Dist. (2006) 139 Cal.App.4th 499, 506.)
B. Judicial Notice
As a demurrer challenges defects on the face of the complaint, it can only refer to
matters outside the pleading that are subject to judicial notice. (County of Fresno v.
Shelton (1998) 66 Cal.App.4th 996, 1008–1009.) We must take judicial notice of matters
properly noticed by the trial court, and may take notice of any matter specified in
Evidence Code section 452. (Evid. Code, § 459, subd. (a).) While we may take judicial
notice of court records and official acts of state agencies (Evid. Code, § 452, subds. (c),
(d)), the truth of matters asserted in such documents is not subject to judicial notice.
(Sosinsky v. Grant (1992) 6 Cal.App.4th 1548, 1564–1565.) We reiterate that as this is an
appeal from a ruling on a demurrer, our review must be based on the properly pleaded
factual allegations in the complaint and the facts that may be properly judicially noticed.
The trial court took judicial notice of the legislative history of two bills related to
the Parity Act: Assembly Bill No. 88 and Senate Bill No. 468. (Evid. Code, § 452,
subd. (c).) Assembly Bill No. 88 was approved by the Legislature in 1999 and enacted
into law as section 1374.72. (Assem. Bill No. 88 (1999–2000 Reg. Sess.) § 2.) On the
other hand, Senate Bill No. 468 was a competing bill considered by the Legislature, but
not approved. (Sen. Bill No. 468 (1999–2000 Reg. Sess.) § 1.)
On appeal, plaintiffs request that we take judicial notice of (1) Senate Bill No. 468
as amended by the Assembly and Senate; (2) the Senate Health and Human Services
Committee Analysis on Senate Bill No. 468; (3) documents filed with the court in
Harlick; (4) records of the superior court in Consumer Watchdog v. Department of

14
Managed Health Care (Super. Ct. L.A. County, 2009, No. BS121397); (5) the legislative
history of section 1374.73; (6) Assembly Committee on Health Report on Senate Bill
No. 946 dated September 7, 2011, and (7) DMHC’s supplemental brief filed in Consumer
Watchdog v. California Department of Managed Health Care (2014) 225 Cal.App.4th
862 (Consumer Watchdog). We take judicial notice of these documents. (Evid. Code,
§§ 452, 459.)
C. Basic Principles of Statutory Interpretation
A reviewing court’s fundamental task in construing a statute is to ascertain the
intent of the lawmakers so as to effectuate the purpose of the statute. (Wilcox v.
Birtwhistle (1999) 21 Cal.4th 973, 977.) This task begins by scrutinizing the actual words
of the statute, giving them their usual, ordinary meaning. (Garcia v. McCutchen (1997)
16 Cal.4th 469, 476.) When the statutory language, standing alone, is clear and
unambiguous—that is, has only one reasonable construction—courts usually adopt the
plain or literal meaning of that language. (Hughes v. Board of Architectural Examiners
(1998) 17 Cal.4th 763, 775.) The “plain meaning” rule, however, does not require courts
to automatically adopt the literal meaning of a statutory provision. (Goodman v. Lozano
(2010) 47 Cal.4th 1327, 1332.)
When statutory language is “susceptible to more than one reasonable
interpretation,” it is regarded as ambiguous and there is no plain meaning. (Hoechst
Celanese Corp. v. Franchise Tax Bd. (2001) 25 Cal.4th 508, 519.) When statutory
language permits more than one reasonable interpretation, “‘we “must select the
construction that comports most closely with the apparent intent of the Legislature, with a
view to promoting rather than defeating the general purpose of the statute, and avoid an
interpretation that would lead to absurd consequences.”’” (Honchariw v. County of
Stanislaus (2011) 200 Cal.App.4th 1066, 1073.)
We determine the apparent intent of the Legislature by reading the ambiguous
language in light of the statutory scheme rather than reading it in isolation. (Lungren v.
Deukmejian (1988) 45 Cal.3d 727, 735.) The ambiguous language must be construed in

15
context, and provisions relating to the same subject matter must be harmonized to the
extent possible. (Ibid.) In addition, we may determine the apparent intent of the
Legislature by evaluating “‘a variety of extrinsic aids, including the ostensible objects to
be achieved’” by the statute, “‘the evils to be remedied,’” the statute’s legislative history,
and public policy. (Honchariw v. County of Stanislaus, supra, 200 Cal.App.4th at
p. 1073.)
Where the Legislature makes express statutory distinctions, we must presume it did
so deliberately, giving effect to the distinctions, unless the whole scheme reveals the
distinction is unintended. This concept merely restates another statutory construction
canon: We presume the Legislature intended everything in a statutory scheme, and we
should not read statutes to omit expressed language. As our Supreme Court stated, “we
are aware of no authority that supports the notion of legislation by accident.” (In re
Christian S. (1994) 7 Cal.4th 768, 776.)
II. The Parity Act Requires Blue Shield to Provide Residential Treatment for
Treatment of Plaintiffs’ Eating Disorders Even Where Such Treatment Is Not Set
Forth in the Plan
Plaintiffs principally argue that Harlick properly interpreted the Parity Act to
require residential treatment for eating disorders where medically necessary because some
treatments that are medically necessary for mental health conditions find no analog in the
treatment of physical illness, and thus resort to the Knox-Keene Act’s “basic health
services” to define appropriate treatment for mental illnesses undermines the fundamental
purpose of the Parity Act.
Blue Shield argues that the statutory language of the Parity Act, as well as the
statutory scheme of which it is a part—the Knox-Keene Act—demonstrate that the
Legislature intended to limit the concept of parity to the “basic health services” set forth
in the Knox-Keene Act, and to find otherwise would unnecessarily expand the scope of
treatment for mental illnesses with the end result that such illnesses receive far more
coverage than physical illnesses. Blue Shield contends that nothing in the legislative
history or DMHC’s conduct indicate any other intent; further, as a policy matter, finding

16
coverage for residential treatment for eating disorders would have a substantial impact on
the California health care market.
We begin our discussion by observing that the stated intent of the Parity Act is
simple: to address the imbalance in coverage between mental illnesses and physical
illnesses. To that end, the Parity Act states its legislative findings, in part, as follows:
“Mental illness is treatable”; “[t]reatment of mental illness is cost-effective”; “there is
increasing scientific evidence that severe mental illnesses, such as schizophrenia, bipolar
disorders, and major depression, are as effectively treated with medications as other
severe illnesses”; “[m]ost private health insurance policies provide coverage for mental
illness at levels far below coverage for other physical illnesses”; “limitations in coverage
for mental illness in private insurance policies have resulted in inadequate treatment for
persons with these illnesses”; “[i]nadequate treatment causes relapse and untold suffering
for individuals with mental illness and their families”; “[l]ack of adequate treatment and
services for persons with mental illness has contributed significantly to homelessness,
involvement with the criminal justice system, and other significant social problems
experienced by individuals with mental illness and their families”; and the “failure to
provide adequate coverage for mental illnesses in private health insurance policies has
resulted in significant increased expenditures for state and local governments”; and “[t]he
Legislature further finds and declares that other states that have adopted mental illness
parity legislation have experienced minimal additional costs if medically necessary
services were well managed.” (Stats. 1999, ch. 534, § 1, p. 1.)
The Parity Act is not easy to decipher because it does not specify how to achieve
parity other than in the sparse language of subdivisions (a), (b), and (c). Parity is an
inherently elusive concept here because treatments for mental and physical illnesses can
vastly differ in their modality and scope. Indeed, the lack of parity arose because of the
differences in mental and physical illnesses. Once this difference is recognized—a
difference that cannot be ignored—we find that it is the guiding principle that must
inform our analysis of the statute at issue. Thus, how to achieve parity cannot depend

17
upon a rigid focus upon achieving identity of treatments for both types of illness. Rather,
as the Legislature has demonstrated, parity was set forth with less precision in order that
the distinctions between mental and physical illnesses would not interfere with the goal of
achieving parity. It is for that reason—the need for flexibility in fashioning care for
mental illnesses—we believe the Legislature declined to refer to “residential treatment”
as a mandated treatment option for two of the specified severe mental illnesses, namely,
anorexia nervosa and bulimia, and also declined to expressly exclude one of the most
effective treatments for eating disorders. However, in attempting to permit some
flexibility on the road to parity, the Legislature unfortunately created ample room for
debate.
A. Statutory Language
Plaintiffs argue that interpreting subdivision (b) to be an exclusive list of the required
treatments is contrary to the implementing regulation because that regulation states the mental
health services required under the Parity Act “shall include, when medically necessary, all
health care services required under the Act including, but not limited to, basic health care
services,” which makes clear that the Parity Act requires plans to provide all of the health care
services required by the Knox-Keene Act, not just “basic health care services.” Blue Shield
asserts that the Parity Act can be interpreted as mandating parity only for the benefits listed in
subdivision (b) because the phrase “shall include” in that subdivision, contrasted with the
phrase “shall include, but not be limited to” in subdivision (c) meant the Legislature intended
subdivision (b) to be an exhaustive list—particularly in light of the introductory phrases of
subdivision (d) of the Parity Act, which uses “include” to mean an exhaustive list of the
covered mental illnesses. Thus, while “include” in some cases can mean a nonexhaustive list,
such interpretation is not reasonable in this statute, which uses both terms in sequential
provisions.
We disagree that the list in subdivision (b) is exhaustive. Subdivision (b) provides
that the services for mental illness mandated in subdivision (a) (“medically necessary
treatment”) “shall include the following” four categories of benefits: outpatient services,

18
inpatient hospital services, partial hospitalization services, and prescription drugs (if the
plan otherwise includes prescription drugs). As a basic principle of statutory
construction, “include” is generally used as a word of enlargement and not of limitation.
(People v. Western Air Lines, Inc. (1954) 42 Cal.2d 621, 639.) Thus, where the word
“include” is used to refer to specified items, it may be expanded to cover other items.
(Ornelas v. Randolph (1993) 4 Cal.4th 1095, 1100–1101.) Thus, a simple reading of
subdivision (b) indicates that the mandated services for mental illnesses are not limited to
the four enumerated items.
The implementing regulation is more specific and provides that the mental health
services required for the diagnosis and treatment of the specified severe mental illnesses
“shall include, when medically necessary, all health care services under the Act, including
but not limited to, basic health care services within the meaning of Health and Safety
Code section 1345[, subdivision] (b).” (Cal. Code Regs., tit. 28, § 1300.74.72, subd. (a).)
Both “includes” and “including” are words of enlargement. (In re Marriage of Angoco &
San Nicolas (1994) 27 Cal.App.4th 1527, 1534.) Thus, as both subdivision (b) and the
implementing regulation use words of enlargement, it does not follow, as Blue Shield
argues or as the trial court concluded, that the use of the two different phrases means that
subdivision (b) should be read as an exhaustive list because the use of a different term or
provision in another part of the same statute means that the Legislature intended to
convey a different meaning. (See, e.g., Romano v. Mercury Ins. Co. (2005) 128
Cal.App.4th 1333, 1344.) Rather, here both phrases mean the same thing and thus for
purposes of statutory construction are identical. In such case, they are to be given the
same meaning absent legislative intent to the contrary. (Delaney v. Baker (1999) 20
Cal.4th 23, 41–42.)
Thus, we do not agree that a simpler enlargement phrase (“includes”) becomes a
limiting phrase merely because in a related statute another enlarging phrase (“including
but not limited to”) is used. More likely, the Legislature chose to use two different
phrases to indicate enlargement. This analysis applies equally to subdivision (c), which

19
provides that the “terms and conditions applied to the benefits required by this section”
“shall include, but not be limited to” the three financially-based conditions.
B. Subdivision (c) “Terms and Conditions”
Blue Shield contends that the three conditions of subdivision (c)—which are
financial in nature—are not limited to financial conditions because otherwise an insurer
or plan would not be able to enforce the numerous nonfinancial terms and conditions
generally applicable to all health benefits under a plan contract. The phrase “terms and
conditions” is used throughout the Insurance Code to apply to subjects not limited to
financial issues. Plaintiffs contend Blue Shield is estopped from making this argument
because it took the contrary position in Harlick; under the doctrine of ejusdem generis the
“terms and conditions” of subdivision (c) are limited; and the issue is not ripe for
consideration because it was not raised in this lawsuit.
A party may raise a new issue on appeal if the issue is purely a question of law.
(Phillips v. TLC Plumbing, Inc. (2009) 172 Cal.App.4th 1133, 1141.) As questions of
statutory interpretation are issues of law, the scope of subdivision (c)’s “terms and
conditions” is properly before us. Further, the doctrine of judicial estoppel applies where
“‘(1) the same party has taken two positions; (2) the positions were taken in judicial or
quasi-judicial administrative proceedings; (3) the party was successful in asserting the
first position (i.e., the tribunal adopted the position or accepted it as true); (4) the two
positions are totally inconsistent; and (5) the first position was not taken as a result of
ignorance, fraud, or mistake.’” (Aguilar v. Lerner (2004) 32 Cal.4th 974, 986–987.) The
court in Harlick, supra, 686 F.3d 699 observed that “the parties agree that ‘terms and
conditions’ refers only to financial terms and conditions.” (Id. at p. 712.) We cannot
conclude from this, however, that Harlick accepted this as Blue Shield’s position, and
thus decline to apply judicial estoppel.
However, we agree with plaintiffs that the issue is not ripe for consideration
because the issue before us—notwithstanding Blue Shield’s attempt to insert the issue
into these proceedings—is not whether the limitations of subdivision (c) apply to prohibit

20
residential treatment for mental health conditions under the Parity Act. Thus, the question
of whether nonmonetary limitations apply to residential treatment is an abstract
proposition not before this court at this time. “‘The ripeness requirement prevents courts
from issuing purely advisory opinions,’” and “‘is rooted in the fundamental concept that
the proper role of the judiciary does not extend to the resolution of abstract differences of
legal opinion.’” (Consumer Cause Inc. v. Johnson & Johnson (2005) 132 Cal.App.4th
1175, 1183.)
C. Statutory Scheme—Knox-Keene Act Limitations
Blue Cross points to the Parity Act’s position within the Knox-Keene Act and
contends that as a result, the concept of parity begins with the Knox-Keene Act’s general
coverage requirements, which do not mandate coverage for all care deemed medically
necessary, but instead only require “[b]asic health care services” as defined in section 1345,
subdivision (b). Plaintiffs’ interpretation that the Parity Act requires coverage for all
medically necessary treatment of severe mental illnesses when such coverage is not mandated
for physical illnesses renders part of the statute surplusage and contradictory because if the
Legislature had intended coverage for all such treatment, it would have inserted the word “all”
into the statute. Further, interpreting the Parity Act to require coverage for all medically
necessary treatment is inconsistent with the DMHC’s enabling regulation because the
enabling regulation ties coverage to the Knox-Keene Act (coverage “shall include, when
medically necessary, all health care services required under the [Knox-Keene] Act including,
but not limited to, basic health care services”).8 We disagree.

8 The debate over whether the Knox-Keene Act limits the Parity Act arises from
the rehearing in the Harlick, supra, 686 F.3d 699 case (see fn. 5, ante). As Harlick noted,
the regulation implementing the Parity Act does not specify whether the act to which it
refers without specification is the Knox-Keene Act or the Parity Act, but that
Administrative Code section 1300.45 provides definitions for terms used in health care
regulations. Section 1300.45, subd. (a), promulgated in 1976, defines “Act” to mean “the
Knox-Keene Health Care Service Plan Act of 1975.” (Harlick, at p. 714; see also Arce v.
Kaiser Foundation Health Plan, Inc. (2010) 181 Cal.App.4th 471, 492 [inserting “Knox-
Keene” in brackets when quoting Cal. Code Regs., tit. 28, § 1300.74.72, subd. (a)].)

21
 Statutes are to be read in context, with the nature and obvious purpose of the
statute in mind. (Tripp v. Swoap (1976) 17 Cal.3d 671, 679.) “[W]e do not construe
statutes in isolation, but read every statute ‘with reference to the entire scheme of law of
which it is part so that the whole may be harmonized and retain effectiveness.’
[Citation.]” (People v. Pieters (1991) 52 Cal.3d 894, 899.) Furthermore, in looking at
the relationship between two statutes, “each sentence must be read not in isolation but in
the light of the statutory scheme.” (Lungren v. Deukmejian, supra, 45 Cal.3d at p. 735.)
Here, the implementing regulation states, “the mental health services required for
the diagnosis and treatment of conditions set forth in . . . section 1374.72 shall include,
when medically necessary, all health care services required under the Act including, but
not limited to, basic health care services within the meaning of . . . section 1345[, subd.]
(b).” This straightforward language nowhere implies that it is limited to the Knox-Keene
Act’s “basic health care services.” Rather, the implementing regulation states that the
mental health services required by the Parity Act “include[], but [are] not limited to,
basic health care services within the meaning of . . . section 1345[, subd.] (b).” (Italics
added.) Thus, we reject Blue Shield’s distorted interpretation which concludes that
because parity begins with the Knox-Keene Act’s general provisions (“basic health care
services”), parity can only require the section 1345, subdivision (b) services already
provided for physical conditions because the Parity Act is part of the Knox-Keene Act.
Such an interpretation flies in the face of the implementing regulation’s language and the
subdivision (a) manifesto that coverage is required for all “medically necessary
treatment” of mental health conditions.
Indeed, as Harlick, supra, 686 F.3d 699 recognized, the coverage in the Parity Act
includes, but is not limited to the “basic health services” of the Knox-Keene Act because
the Parity Act is already limited by the “medically necessary” proviso. (Id. at p. 716.)
Further, as amicus curiae Helen MacLeod Thomson, the sponsor of Assembly Bill
No. 88, and the California Psychiatric Association point out, MediCal, the program
providing medical and mental health care for the poor, provides “adult residential

22
treatment” as a managed health care benefit to treat eating disorders. (Cal. Code Regs.,
tit. 9, §§ 1810.203, 1830.205.)
In that regard, Blue Shield argues that the Parity Act does not require coverage for
all medically necessary treatment of mental illnesses because the Legislature did not use
the word all in subdivision (a). Blue Shield points to the fact that subdivision (b) contains
a limit on prescription drugs, which may be medically necessary to treat some mental
illnesses. Rather than negating our conclusion, Blue Shield’s argument actually raises the
issue of whether a plan could lawfully limit prescription drugs for treatment of mental
illness where such drugs were medically necessary.
In conclusion, the only proper limitation in terms of parity that can be placed on
what is “medically necessary” to treat a severe mental illness, including bulimia or
anorexia nervosa, are the particular limits of a given policy. (See § 1374.72, subd. (c).)
Nonetheless, Blue Shield relies on the mandate of section 1374.73, which the Legislature
added to the Parity Act to mandate coverage for behavioral health treatment for autism9
(Stats. 2011, ch. 650, § 1), and the 2013 promulgation by the DMHC of a regulation
pertaining to behavioral health treatment for pervasive developmental disorder or autism,
to argue that requiring coverage for eating disorders under section 1374.72 will result in
limitless coverage requirements. (See Cal. Code Regs., tit. 10, § 2562.4.) That regulation
provides at subdivision (b), “In cases where behavioral health treatment is medically
necessary, an insurer shall not deny or unreasonably delay coverage for behavioral health
treatment: [¶] . . . [¶] (5) On the grounds that an annual visit limit has been reached or
exceeded . . . .” (Cal. Code Regs., tit. 10, § 2562.4, subd. (b)(5).) Blue Shield argues that
this regulation, which although by its terms applies solely to health insurance policies, not
the health service plans at issue here and is a specific treatment for autism, demonstrates

9 Section 1374.73 provides in pertinent part, “(a)(1) Every health care service plan
contract that provides hospital, medical, or surgical coverage shall also provide coverage
for behavioral health treatment for pervasive developmental disorder or autism no later
than July 1, 2012. The coverage shall be provided in the same manner and shall be
subject to the same requirements as provided in Section 1374.72.”

23
that there is a slippery slope onto which health plans will slide with respect to residential
treatment and where the promise of parity can easily turn into the creation of unlimited
services. We disagree that such a slippery slope will exist with residential treatment for
eating disorders under section 1374.72 because that statute contains no express provision
creating such a gateway to unlimited coverage; further, as our interpretation finds,
“medically necessary” coverage is coverage that is nonetheless limited by the policy
limits.
Further, to the extent that Blue Shield, in order to bolster this position, relies on
Consumer Watchdog, supra, 225 Cal.App.4th 862, where the court addressed the issue of
whether health maintenance organizations were obligated to provide Applied Behavioral
Analysis (ABA) therapy for autism by Behavior Analysis Certification Board (BACB)
certified therapists, although such therapists were not licensed by the state as required by
the Knox-Keene Act, such reliance is inapposite. On April 23, 2014, the Court of Appeal
issued its opinion after rehearing, and held that section 1374.73, enacted October 9, 2011,
required plans, as of July 1, 2012, to provide ABA therapy for autism disorders and that
such therapy could be provided either by licensed therapists or BACB-certified therapists;
as a result, plans could not deny ABA services where the basis for the denial was that a
BACB-certified provider was not licensed. (See § 1374.73, subds. (c)(1)(B).) (Consumer
Watchdog, at pp. 881–882.) Consumer Watchdog’s analysis of the Parity Act’s autism
provision has no application to our analysis of residential treatment for eating disorders
because the Legislature’s very specific mandates for autism were designed to address the
provision of highly effective and unusual therapeutic services unique to autism.
D. Legislative History
Plaintiffs argued that if the Legislature intended to exclude residential treatment
from the Parity Act, it could have expressly said so. They rely on a competing bill, Senate Bill
No. 468, that was not passed and which would have not only required “comprehensive mental
health parity” for all mental illnesses, not just severe mental illnesses, but contained in its
initial version a provision that plans could exclude treatment at a residential treatment facility

24
that was deleted by the Legislature in a subsequent version. Blue Shield counters that the fact
the Legislature failed to specifically exclude residential services from parity coverage as
plaintiffs argue does not mean such services are covered; rather, the Legislature in crafting the
Parity Act was not focused on excluding specific services but in rectifying an imbalance in
coverage and the absence of such a carve-out (which was considered and dropped from the
parallel proposed legislation) does not create coverage.
(1) Background
The legislative history of Assembly Bill No. 88 is unremarkable in terms of
substantive revisions to the bill during its genesis. The bill was introduced on
December 10, 1998, as part of the 1999–2000 regular session. (Assem. Bill No. 88
(1999–2000 Reg. Sess.) as introduced Dec. 10, 1998.) The bill was amended
February 24, 1999, with very minor changes, including the deletion of borderline
personality disorder as a “severe mental illness.” (Assem. Bill No. 88 (1999–2000 Reg.
Sess.) as amended Feb. 24, 1999.) An amendment in the Senate dated August 17, 1999,
made more minor revisions, including removing a provision to permit coverage through
separate specialized health care service plans. (Sen. Amend. to Assem. Bill No. 88
(1999–2000 Reg. Sess.) Aug. 17, 1999.) Another Senate amendment dated September 8,
1999, changed the date of effectiveness from January 1, 2000 to July 1, 2000. (Sen.
Amend. to Assem. Bill No. 88 (1999–2000 Reg. Sess.) Sept. 8, 1999.) Assembly Bill
No. 88 passed on September 28, 1999.
The background history of the bill contains no references to the specific types of
treatment for severe mental illnesses. Rather, it indicates the purpose of the bill was to
“prohibit discrimination against people with biologically based mental illnesses, dispel
artificial and scientifically unsound distinctions between mental and physical illnesses,
and require equitable mental health coverage among all health plans and insurers to
prevent adverse risk selection by health plans and insurers. . . . [M]ental illness is
treatable in a cost-effective manner and . . . the failure of the health care system to
provide adequate treatment for persons with mental illness has been costly not only to

25
mentally ill individuals and their families, but to society as a whole and particularly to
state and local governments.” (Sen. Com. on Insurance, Rep. on Assem. Bill No. 88
(1999–2000 Reg. Sess.) as amended Feb. 24, 1999, p. 2.) The report further noted that at
least 19 other states had laws requiring equitable coverage for mental illnesses, with
benefits ranging from coverage of “all mental illnesses, plus chemical dependency, to
only a selected number of severe or biologically based illnesses.” The Parity Act would
require “equitable coverage for selected severe mental illnesses.” (Id. at p. 4.)
Representative of the history of Assembly Bill No. 88 is a report from the
Assembly Committee on Appropriations, which stated that the bill’s coverage
requirements would increase the cost of health insurance premiums to employers and
individuals, but the National Advisory Health Council believed the coverage would result
in premium increases of less than 1 percent. However, a 1996 study by the Congressional
Budget Office (CBO) projected premium increases between 3 and 4 percent. In turn, the
CBO’s study was questioned by RAND Corporation, which stated that the CBO estimates
did not take into account the differences between managed care and fee-for-services
based insurance. (Assem. Com. on Appropriations, Rep. on Assem. Bill No. 88 (1999–
2000 Reg. Sess.) as amended Mar. 24, 1999, p. 2.) Arguments in support of the bill
included improvement to worker productivity, reduction of homelessness, and lowering
of criminal justice system costs. The California Psychiatric Association (CPA) noted that
the discrimination in health care between mental and physical ailments was based on the
outdated belief that mental illnesses had no biological basis, but that an abundance of
research established a difference in the brains of healthy individuals versus persons with
severe mental illnesses. The CPA believed the bill should not be limited only to severe
forms of mental illness. (Id. at p. 3.) The California Association of Health Plans (CAHP)
opposed the bill unless amended, based on increased cost for small employers and
individuals. (Ibid.) The CAHP also argued that costs of coverage would increase by up
to 6.5 percent, and that “employers already had access to mental health coverage, since
most health plans offered this coverage to employers who wanted to purchase it.”

26
(Assem. Com. on Health, Analysis of Assem. Bill No. 88 (1999–2000 Reg. Sess.) as
amended Feb. 24, 1999, p. 5.)
An Assembly Bill Analysis stated Assembly Bill No. 88 should follow the federal
Mental Health Parity Act by allowing employers to opt out of the mandate if it would
increase premiums by more than 1 percent, and exclude individuals and small employers.
(Assem. Rep. Bill Analysis, Assem. Bill No. 88 (1999–2000 Reg. Sess.) as amended
Feb. 24, 1999, p. 2.) The analysis recognized that 65 percent of business supported a
mental health mandate if it raised premiums by 5 percent or less. (Ibid.) In a report of the
Senate Committee on Insurance, the CPA pointed out that with managed care, controls
would be in place to assure that the services required would be limited to those that are
medically necessary. Further, the CPA supported Senate Bill No. 468. (Sen. Com. on
Insurance, Analysis of Assem. Bill No. 88 (1999–2000 Reg. Sess.) as amended Feb. 24,
1999, p. 4.) However, a Senate Rules Committee analysis indicated that problems were
noted because mental health treatment can be a lifetime proposition, but that with the high
market penetration of managed care in California, there was no danger that “frivolous and
unchecked utilization of services [would] spiral out of control.” (Sen. Rules Com., Rep.
on Assem. Bill No. 88 (1999–2000 Reg. Sess.) as amended Aug. 17, 1999, p. 7.)
The Enrolled Bill Report for Assembly Bill No. 88 dated September 8, 1999,
stated that the costs of additional mental health care would be offset by savings in other
areas, such as the criminal justice system.
Senate Bill No. 468 was a competing parity bill during the 1999–2000 session, but
was not passed. Senate Bill No. 468, introduced February 17, 1999, would have added a
version of section 1374.72 containing core provisions nearly identical to those in
Assembly Bill No. 88. (Sen. Bill No. 468 (1999–2000 Reg. Sess.) as introduced Feb. 17,
1999.) A subsequent version of Senate Bill No. 468 bill defined mental illness to include
mental disorders defined in the Diagnostic and Statistical Manual IV (DSM IV) and
permitted plans to exclude coverage for services that were “not medically necessary or
clinically appropriate.” (Sen. Bill No. 468 (1999–2000 Reg. Sess.) as amended Mar. 22,

27
1999.) Most significantly, the version of Senate Bill No. 468 dated March 22, 1999—
specifically permitting exclusion of coverage for residential treatment—dropped that
exclusion from a later version dated April 27, 1999. (Sen. Bill No. 468 (1999–2000 Reg.
Sess.) as amended Mar. 22, 1999, and Apr. 27, 1999.)
In related legislation in 2011, the Legislature added section 1374.73 to the Parity
Act to mandate coverage for behavioral health treatment for autism. (§ 1374.73,
subd. (a)(1).) (Stats. 2011, ch. 650, § 1.) Section 1374.73 contains a sunset provision and
expires on January 1, 2017. (§ 1374.73, subd. (g).) Whether section 1374.73 permitted
the use of unlicensed therapists who were nonetheless certified in a specific type of
treatment for autism was the issue before the court in Consumer Watchdog, supra, 225
Cal.App.4th 862.
(2) Discussion
“[R]eading the tea leaves of legislative history is often no easy matter. Even
assuming there is such a thing as meaningful collective intent, courts can get it wrong
when what they have before them is a motley collection of author’s statements, committee
reports, internal memoranda and lobbyist letters. Related to this problem . . . [is the fact]
that legislators are often ‘blissfully unaware of the existence’ of the issue with which the
courts must grapple, and . . . ambiguity may be the deliberate outcome of the legislative
process. In light of these factors, the wisest course is to rely on legislative history only
when the history itself is unambiguous.” (J.A. Jones Construction Co. v. Superior Court
(1994) 27 Cal.App.4th 1568, 1578, fn. omitted.)
The tea leaves of Assembly Bill No. 88 offer little insight into the specific issue of
whether residential care was intended to be included or excluded as a benefit required
under the Parity Act. Most of the debate in the legislative history centers on costs versus
social benefits and not whether specific treatments will be required by the Parity Act.
The legislative history indicates that insurers such as Blue Shield were concerned that
costs would spiral out of control, but the CPA’s comment that the medically necessary
provision would limit the scope of mental health benefits is consistent with our statutory

28
analysis. Furthermore, Senate Bill No. 468 specifically added and deleted residential
treatment, indicating the Legislature was well aware of this standard of care and that it
had an available mechanism by which to exclude residential care expressly from the
Parity Act. Finally, the lack of focus in the legislative history of Assembly Bill No. 88 on
residential treatment is consistent with the broad language of the Parity Act and the
guiding principle of “medical necessity” as opposed to “basic health care” services to
limit what health care services were and were not required.
E. Statutory Purpose: Evils to be Remedied
Blue Shield contends the Harlick court erred when it asserted that the Parity Act
and the Knox-Keene Act operate in fundamentally different ways because the Parity Act
is part of the Knox-Keene Act and was not intended to be fundamentally different from
the Knox-Keene Act but was intended to create and enforce parity in coverage under the
Knox-Keene Act; things which are fundamentally different cannot be in parity.
Furthermore, it would be illogical to construe the Knox-Keene Act to provide limitless
coverage for mental illnesses, while limiting coverage for physical illnesses.
This argument misunderstands Harlick’s reasoning and fails to see that the Parity
Act, in fact, places limits on coverage. Harlick, supra, 686 F.3d 699 stated that the Parity
Act and the Knox-Keene Act operate in fundamentally different ways because mandated
coverage under the Parity Act applies to nine specified “‘severe’” mental illnesses and
does not mandate coverage for nonsevere mental illnesses; in contrast, the Knox-Keene
Act mandates coverage for all physical illnesses, severe or otherwise. Harlick concluded
this difference was the source of the limitations of required coverage for mental and
physical illnesses. In brief, the Parity Act limited insurer liability by “limiting the
illnesses to which it applies, not by limiting medically necessary treatments,” while the
Knox-Keene Act limited “insurer liability by limiting medically necessary treatments.”
(Id. at p. 716.)

29
 F. Policy
Blue Shield makes two policy arguments. First, it contends that plaintiffs’
interpretation ignores the economic impact on the California health care market. The
Knox-Keene Act reflects the legislative balance in requiring coverage for certain types of
basic care and leaving everything else to the market to permit parties to choose whether to
offer more benefits at a higher price or fewer benefits at a lower price. Further, Blue
Shield asserts that comparing the Parity Act to other states’ laws shows that the
Legislature did not intend to mandate coverage of residential treatment for eating
disorders. (See, e.g., N.D. Cent. Code § 26.1-36-09, subd. (2)(a); Mont. Code Ann. § 33-
22-705.) The California Legislature recognized that it was aware of the laws of other
states (see, e.g., Assem. Com. on Health, Analysis of Assembly Bill No. 88 (1999–2000
Reg. Sess.) as amended Feb. 24, 1999, p. 4) yet it chose not to include residential
treatment in California’s law.
We disagree. Blue Shield’s construction would exclude one of the most effective
treatments for anorexia and bulimia, one of the primary legislative purposes of the Parity
Act will be thwarted because victims of eating disorders will not receive effective
treatment, resulting in needless mental suffering and physical deterioration. Blue Shield’s
construction contradicts the legislative findings because it would result in the loss of
productivity and increased physical illness of individuals with eating disorders.
G. DMHC’s Conduct and Position
In spite of all of the above, Blue Shield argues that DMHC’s actions and position
taken in multiple situations demonstrates the DMHC interprets the Parity Act in a manner
consistent with Blue Shield’s position. We do not find DMHC’s actions and positions
taken with respect to residential treatment have the significance Blue Shield attributes to
them.
For example, during the comment period on the proposed regulation, Blue Shield
expressed concern that the regulation might be read to require coverage for all medically
necessary care even if it were not a basic health care service. DMHC stated, “Given that

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the statute requires parity in coverage, [Blue Shield’s] concern is without merit; the
regulation requires only that health plans provide mental health coverage in parity with
what the plan provides for other medical conditions. The draft regulation language makes
clear that plans cannot limit mental health coverage to anything less than what is
medically necessary and on parity with other health coverage provided by the plan.”
In addition, Blue Shield argues DMHC licensed Blue Shield’s plans that expressly
excluded residential treatment, and DMHC’s surveys indicate that it does not view a
plan’s exclusion of residential treatment a violation of the Parity Act. Such surveys are
mandated by section 1380 and constitute the primary method by which the DMHC
enforces the Knox-Keene Act.
We are not bound by an administrative agency’s position where, as here, it
contradicts the language of the statute. We recognize that when an administrative agency
is charged with administering a statute or ordinance, the administrative agency’s
interpretation of the applicable law is given great deference by the reviewing court. (Cole
v. City of Oakland Residential Rent Arbitration Bd. (1992) 3 Cal.App.4th 693, 697–698.)
While agency interpretation of the meaning and legal effect of a statute or the agency’s
regulation is entitled to consideration and respect by the courts, courts must independently
judge the text of a statute. Further, the weight accorded to an agency’s interpretation is
“fundamentally situational” and “turns on a legally informed, commonsense assessment
of [its] contextual merit.” (Yamaha Corp. of America v. State Bd. of Equalization (1998)
19 Cal.4th 1, 12, 14.) “Courts must, in short, independently judge the text of the statute,
taking into account and respecting the agency’s interpretation of its meaning, of course,
whether embodied in a formal rule or less formal representation. Where the meaning and
legal effect of a statute is the issue, an agency’s interpretation is one among several tools
available to the court. Depending on the context, it may be helpful, enlightening, even
convincing. It may sometimes be of little worth.” (Id. at p. 7.) The degree of deference
accorded is dependent in large part upon whether the agency has a “‘comparative

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interpretative advantage over the courts’” and on whether it has arrived at the correct
interpretation. (Id. at p. 12.)
Here, as discussed above, we do not follow DMHC’s interpretation or actions that
purportedly reflect its view that the Parity Act does not cover residential treatment
because we conclude such an interpretation is contrary to the Parity Act.
H. Conclusion
In summary, we conclude that the language and background of the Parity Act
establish that residential treatment for eating disorders must be covered by health care
service plans such as Blue Shield’s plan. We do not interpret the concept of “parity” to
require treatments for mental illnesses to be identical to those mandated for physical
illnesses; rather, given the principle that treatments for the two types of illnesses are in
many cases not comparable, parity instead requires treatment of mental illnesses sufficient
to reach the same quality of care afforded physical illnesses. We finally observe that
where more than one statutory construction is arguably possible, the “‘“policy has long
been to favor the construction that leads to the more reasonable result.”’” (Witt Home
Ranch, Inc. v. County of Sonoma (2008) 165 Cal.App.4th 543, 555.) We consider “‘“the
consequences that will flow from a particular interpretation”’” while avoiding a
construction that would “‘lead to unreasonable, impractical or arbitrary results.’”
(Commission on Peace Officer Standards & Training v. Superior Court (2007) 42 Cal.4th
278, 290.) In that regard, those persons whose insurers and plans currently provide
coverage for residential treatment of eating disorders could find themselves without such
coverage, and we are loathe to upend this longstanding expectation of coverage. We
therefore find no legal basis to disrupt this reasonable and established interpretation of a
statute that has been in effect for 14 years by adopting Blue Shield’s interpretation of the
Parity Act to exclude such coverage.
If the Legislature disagrees with our analysis, it can amend the Parity Act to set
forth a particularized exclusion for residential treatment. As evidenced by section

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1374.73, when the Legislature wants to specifically address the scope of health care
services under the Parity Act, it speaks with precision.
DISPOSITION
The judgment is reversed. Appellants are to recover their costs on appeal.
CERTIFIED FOR PUBLICATION.

JOHNSON, J.

We concur:

ROTHSCHILD, Acting P. J.

MILLER, J.*

* Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant
to article VI, section 6 of the California Constitution.

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