Rebecca Morris v. California Physicians' Service, 918 F.3d 1011

Blue Shield sold Covered California plans; its provider directory mistakenly listed some out-of-network physicians as in-network, causing enrollees to be charged higher (out-of-network) rates.
California regulator DMHC and Blue Shield entered a settlement: Blue Shield would correct the directory and reprocess claims at in-network rates for enrollees who attested they received covered services, resulting in >$38M in reimbursements.
Blue Shield included those settlement reimbursements in its Medical Loss Ratio (MLR) numerator for 2014 (payments for clinical services) when calculating whether it met the 80% MLR threshold under the ACA, 42 U.S.C. § 300gg-18.
Two enrollees filed a class action alleging Blue Shield improperly counted reimbursements for services by out-of-network providers in the MLR, reducing the rebate owed to enrollees and causing unjust enrichment/unfair competition under California law.
The district court dismissed the complaint: it held the settlement payments compensated enrollees for covered clinical services and thus properly counted as "incurred claims" in the MLR numerator. The Ninth Circuit affirmed.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether payments made under the settlement for services by out-of-network providers may be included in the MLR "incurred claims" numerator	Payments to out-of-network providers are not "covered by the policy" and therefore should be excluded from MLR incurred claims	The statute and implementing regulations count reimbursements for clinical services covered by the plan regardless of provider network status; settlement reimbursements compensated covered services and so qualify	Inclusion was proper: MLR measures aggregate spending on covered clinical services, not a provider-network distinction; payments counted as incurred claims
Whether dismissal without leave to amend was improper	Plaintiffs sought remand to amend to allege some reimbursements were for services not covered by the plan	Settlement and factual history show reimbursements were limited to covered services; plaintiffs never sought leave below and the request on appeal was untimely	Dismissal without leave to amend affirmed as plaintiffs never sought leave in district court and could not timely raise new factual theories on appeal

Nat’l Fed. of Indep. Bus. v. Sebelius, 567 U.S. 519 (context on ACA purpose and history)
King v. Burwell, 135 S. Ct. 2480 (context on ACA interpretation and purpose)
Alaska v. United States, 201 F.3d 1154 (9th Cir. 2000) (untimely and improper amendment/remand standards)