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.,

Plaintiffs and Appellants,

v.

BLUE SHIELD OF CALIFORNIA,

Defendant and Respondent.

 B244314

 (Los Angeles County

 Super. Ct. No. BC468900)

 ORDER MODIFYING OPINION

 AND DENYING REHEARING

 [NO CHANGE IN JUDGMENT]

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.,

Plaintiffs and Appellants,

v.

BLUE SHIELD OF CALIFORNIA,

Defendant and Respondent.

 B244314

 (Los Angeles County

 Super. Ct. No. BC468900)

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.
2

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.
3

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 KnoxKeene 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 
4

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 
5

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.
6

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 KnoxKeene 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).)
7

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 KnoxKeene Act, and the Parity Act could thus not be used to enlarge the scope of the KnoxKeene 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. 
8

“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.
9

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 
10

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 
11

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.
12

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 
13

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 
14

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 
15

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 
16

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 
17

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 
18

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, 
19

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 
20

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 
21

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 “KnoxKeene” in brackets when quoting Cal. Code Regs., tit. 28, § 1300.74.72, subd. (a)].)
22

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 
23

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.”
24

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
25

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 
26

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.” 
27

(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, 
28

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 
29

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.)
30

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 
31

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 
33

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.