                     FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

JEANENE HARLICK,                                  No. 10-15595
               Plaintiff-Appellant,                  D.C. No.
               v.                               3:08-cv-03651-SC
BLUE SHIELD OF CALIFORNIA,                         ORDER AND
              Defendant-Appellee.
                                                    OPINION

         Appeal from the United States District Court
           for the Northern District of California
        Samuel Conti, Senior District Judge, Presiding

                   Argued and Submitted
           May 11, 2011—San Francisco, California

                        Filed June 4, 2012

     Before: William A. Fletcher and N. Randy Smith,
 Circuit Judges, and Richard Mills, Senior District Judge.*

           Opinion by Judge William A. Fletcher;
          Partial Concurrence and Partial Dissent by
                      Judge N.R. Smith




   *The Honorable Richard Mills, Senior District Judge for the U.S. Dis-
trict Court for Central Illinois, Springfield, sitting by designation.

                                 6173
            HARLICK v. BLUE SHIELD OF CALIFORNIA         6177




                         COUNSEL

Lisa S. Kantor, Elizabeth K. Green, KANTOR & KANTOR,
Northridge, California, for the plaintiff-appellant.

Adam Pines, Joanna Sobol McCallum, MANATT, PHELPS
& PHILLIPS, LLP, Los Angeles, California, for the
defendant-appellee.

Ethan P. Schulman, CROWELL & MORING LLP, San Fran-
cisco, California, for amicus curiae California Association of
Health Plans.

John M. LeBlanc, BARGER & WOLEN LLP, Los Angeles,
California, for amicus curiae California Chamber of Com-
merce.

Henry W. Crowle, CALIFORNIA PUBLIC EMPLOYEES’
RETIREMENT SYSTEM LEGAL OFFICE, Sacramento,
California, for amicus curiae California Public Employees’
Retirement System.
6178         HARLICK v. BLUE SHIELD OF CALIFORNIA
Adam Michael Cole, CALIFORNIA DEPARTMENT OF
INSURANCE, San Francisco, California, for amicus curiae
Insurance Commissioner for the State of California Dave
Jones.


                          ORDER

   This court’s opinion filed on August 26, 2011, and pub-
lished at Harlick v. Blue Shield of California, 656 F.3d 832
(9th Cir. 2001), is withdrawn and replaced by the attached
Opinion and Dissent.

  With the filing of this new opinion and dissent, Judge
Fletcher and Judge Mills voted to deny the petition for panel
rehearing. Judge Fletcher voted to deny the petition for
rehearing en banc, and Judge Mills so recommended. Judge
Smith voted to grant the petition for panel rehearing and the
petition for rehearing en banc.

  The full court has been advised of the petition for rehearing
en banc and no judge of the court has requested a vote on
whether to rehear the matter en banc. Fed. R. App. P. 35.

  The petition for panel rehearing and the petition for rehear-
ing en banc, filed September 9, 2011, are DENIED.

   Subsequent petitions for panel rehearing and/or petitions
for rehearing en banc may be filed with respect to the Opinion
in accordance with the requirements of Fed. R. App. P. 40 and
35.
             HARLICK v. BLUE SHIELD OF CALIFORNIA          6179
                            OPINION

W. FLETCHER, Circuit Judge:

   Plaintiff Jeanene Harlick suffers from anorexia nervosa.
The question before us is whether Blue Shield was required
to pay for her care at a residential treatment facility, either
under the terms of her insurance plan or under California’s
Mental Health Parity Act. We conclude that her insurance
plan, considered alone, does not so require, but that the Men-
tal Health Parity Act does so require.

                       I.   Background

           A.   Harlick’s Treatment at Castlewood

   Jeanene Harlick, who is 38 years old, has suffered from
anorexia for more than twenty years. In early 2006, when she
was a clerk at the Pacific Construction & Manufacturing
Company, she relapsed and began intensive outpatient treat-
ment. At that time, she was enrolled in the company’s health
insurance plan through Blue Shield (“the Plan”), which paid
for the treatment.

   In March 2006, Harlick’s doctors told her that she needed
a higher level of care than the intensive outpatient treatment
then being provided. Blue Shield employees told Harlick on
the telephone that residential treatment was not covered under
her Plan, but that partial or inpatient (full-time) hospitaliza-
tion would be covered if Blue Shield determined that it was
medically necessary. Blue Shield employees gave Harlick the
names of several facilities where such treatment might be
covered. Harlick and her doctors ultimately determined that
none of the in-network facilities suggested by Blue Shield
could provide effective treatment, so she registered at Castle-
wood Treatment Center, a residential treatment facility in
Missouri that specializes in eating disorders. When Harlick
entered Castlewood, she was at 65% of her ideal body weight.
6180         HARLICK v. BLUE SHIELD OF CALIFORNIA
When she had been there less than a month, a feeding tube
was inserted because her “caloric level needed to gain weight
was so high.” Harlick stayed at Castlewood from April 17,
2006 to January 31, 2007.

   According to Castlewood’s website, it is a “Residential
Treatment Facility and Day Hospital program for individuals
needing comprehensive treatment for anorexia nervosa,
bulimia nervosa, and binge eating disorders.” Castlewood
specializes in the treatment of those who, like Harlick, have
multiple mental illnesses and have failed in other treatment
programs. Six levels of care are available at Castlewood. In
increasing order of intensity, they are a community support
group, an outpatient program, an intensive outpatient pro-
gram, day treatment, “Step Down” or partial hospitalization,
and residential care. Every week, patients in residential care
have four sessions with an individual therapist, one session
with a psychiatrist, one session with a nutritionist, and many
hours of group therapy. Castlewood staff members are on-site
twenty-four hours a day. They plan patients’ meals, monitor
patients’ food intake and kitchen use, provide dietary supple-
ments, and maintain feeding tubes. Several staff members at
Castlewood have graduate degrees in psychology, but none of
the staff members is a medical doctor or a nurse.

   Castlewood is consistently described as a “residential”
community on its website. In an FAQ section of the website
discussing insurance, potential patients are told to ask their
insurance companies about available benefits for
“[r]esidential, mental health, non-substance abuse” treatment.
The website says that “Castlewood . . . is licensed as a ‘Resi-
dential’ facility, so it is important to obtain the residential
benefit and not simply the ‘inpatient’ benefit, as they might
be different.” The website also says that many states “have
‘parity’ laws, which means that the eating disorder could
potentially be covered on par with medical benefits.”
             HARLICK v. BLUE SHIELD OF CALIFORNIA           6181
                         B.   The Plan

   For mental illnesses, Harlick’s insurance plan covers inpa-
tient services, limited outpatient services, office visits, psy-
chological testing, and in-person or telephone counseling
sessions. Inpatient services are covered “in connection with
hospitalization or psychiatric Partial Hospitalization (day
treatment).” Inpatient services for treatment of mental ill-
nesses are discussed three times in the Plan. Each time, the
Plan says that “[r]esidential care is not covered.” “Residential
care” is not defined anywhere in the Plan.

   For physical illnesses, the Plan covers extensive hospital
treatment, outpatient treatments, and office visits. It also cov-
ers certain forms of “subacute care.” Subacute care is defined
as “skilled nursing or skilled rehabilitation provided in a Hos-
pital or Skilled Nursing Facility to patients who require
skilled care such as nursing services, physical, occupational or
speech therapy, a coordinated program of multiple therapies
or who have medical needs that require daily Registered
Nurse monitoring.” A Skilled Nursing Facility (“SNF”) is
defined as “a facility with a valid license issued by the Cali-
fornia Department of Health Services as a Skilled Nursing
Facility or any similar institution licensed under the laws of
any other state, territory, or foreign country.” The Plan pro-
vides coverage for up to 100 days at an SNF.

            C.   Blue Shield’s Coverage Decision

   Blue Shield paid for the first eleven days of Harlick’s treat-
ment at Castlewood, but then refused to pay for the rest of her
treatment. Blue Shield conducted several internal reviews of
Harlick’s claim, and Blue Shield employees engaged in exten-
sive correspondence with Harlick and her mother, Robin Wat-
son, about her claim.

  On September 20, 2006, Blue Shield employee Bruce Berg
reviewed Harlick’s record and recommended denying the
6182         HARLICK v. BLUE SHIELD OF CALIFORNIA
claim in an internal document that was not sent to Harlick or
Watson. Berg wrote, “[T]his appears to be residential care as
stated in the consent to treatment/treatment plan. . . . Residen-
tial treatment is not a benefit.”

   On December 8, 2006, Blue Shield employee David Battin
reviewed the claim in another internal document. Battin con-
cluded that “[t]he principal reason” for the denial was that
Harlick’s plan did not cover residential care. A few days later,
on December 12, 2006, Blue Shield employee Risell Tachin-
Salazar wrote to Harlick and denied the claim based on Bat-
tin’s review, explaining that Harlick did not have a benefit for
residential care.

  On January 19, 2007, Blue Shield employee Carroll Ceder-
berg reviewed the claim in another internal document. Ceder-
berg again concluded that residential care was not a covered
benefit under Harlick’s Plan.

   On March 27, 2007, David Battin reviewed the claim again
in another internal document. He concluded:

    The principal reason [for the denial] is that these ser-
    vices are not a covered benefit. As per your health
    plan’s Evidence of Coverage (EOC); all inpatient
    psychiatric hospital care must be prior authorized by
    the Mental Health Services Administrator (MHSA),
    except for emergency care. Since you specifically
    traveled to Missouri to be admitted to this particular
    facility, this would not be considered as an emer-
    gency admission. You also had amble [sic] time to
    contact MHSA for authorization prior to your admis-
    sion. In addition; [sic] residential care (room and
    board) is not a covered benefit. During the dates of
    service 4/28/06 to 8/25/06 the medical necessity of
    being treated as an inpatient was not established, you
    could have been treated as an outpatient. Since your
    EOC does not cover room and board, the facility fees
             HARLICK v. BLUE SHIELD OF CALIFORNIA            6183
    for your residential treatment . . . are not a covered
    benefit.

Battin also wrote that professional fees incurred at Castle-
wood, such as psychologists’ fees, would be covered if Blue
Shield found that the professional treatment was medically
necessary. A few days later, on April 6, 2007, Blue Shield
employee Mary Anne Gomez sent a letter to Harlick that
repeated Battin’s statements nearly verbatim.

   On April 30, 2007, Blue Shield employee Carolyn Garner
wrote to Harlick, reiterating that coverage for treatment at
Castlewood had been denied because Harlick’s plan did not
cover residential treatment. Garner corrected two errors in
Gomez’s April 6 letter. First, she explained that the preauthor-
ization requirement did not apply to facilities outside Califor-
nia. Second, she explained that professional fees incurred at
Castlewood would not be covered unless the professionals
billed Blue Shield independently. Since Castlewood charged
a global fee that included professional fees, Blue Shield
would not cover those fees. Finally, in response to an inquiry
from Harlick’s mother, Robin Watson, Garner wrote that Cal-
ifornia’s mental heath parity law did not require Blue Shield
to cover treatment at Castlewood. Garner wrote that the Plan
did not cover any residential treatment, “whether the diagno-
sis is for a mental health condition or a medical condition,”
so there was no violation of the parity law.

   On May 2, 2007, according to Watson, Blue Shield
employee Mary Anne Gomez suggested to Watson on the
telephone that Blue Shield might, in fact, cover professional
fees from Castlewood, and told her to separate her claims for
professional fees from her claims for room and board.

  On August 3, 2007, Blue Shield employee Joan Russo
wrote a detailed letter to Watson clarifying inconsistencies in
previous letters and reiterating reasons for the denial. She
repeated that the claim had been denied because residential
6184         HARLICK v. BLUE SHIELD OF CALIFORNIA
facilities were not covered. She explained, for the first time,
that Blue Shield had paid for the first eleven days at Castle-
wood because of a “coding error.” According to Russo, the
coder used “a procedure code that did not identify the claim
as a mental health diagnosis,” so it was paid automatically.
Finally, Russo said that professional fees would not be cov-
ered. The letter stated that it was the final decision in Har-
lick’s administrative appeal.

   Blue Shield eventually paid for professional fees incurred
at Castlewood. It has never paid for the rest of her treatment
at Castlewood.

                     D.   DMHC Review

   Frustrated by Blue Shield’s refusal to pay, Watson filed a
complaint with California’s Insurance Commissioner. Her let-
ter was forwarded to the California Department of Managed
Health Care, where Senior Counsel Andrew George investi-
gated the complaint. George wrote to Blue Shield and asked,
among other things: (1) why Harlick had been told that resi-
dential care was not medically necessary; (2) why Harlick
was told that benefits would be denied because care was not
pre-authorized, even though the Plan clearly stated that lack
of preauthorization resulted only in a $250 penalty; and (3)
whether Castlewood could be covered as an SNF. After talk-
ing to Russo at Blue Shield, George concluded that “although
[Harlick] ha[d] been provided with conflicting information
from the Plan regarding its basis for denial,” Blue Shield had
denied coverage because Harlick’s Plan did not cover residen-
tial care.

            E.   Proceedings in the District Court

   On October 31, 2008, Harlick filed a complaint in federal
district court. On March 4, 2010, the district court granted
Blue Shield’s motion for summary judgment and denied Har-
lick’s motion for summary judgment. The court found that
             HARLICK v. BLUE SHIELD OF CALIFORNIA          6185
Harlick’s Plan unambiguously excluded coverage for residen-
tial care and that, while the Plan did cover care at Skilled
Nursing Facilities, Castlewood was not an SNF. The court did
not reach the question whether California’s Mental Health
Parity Act required coverage of Harlick’s residential treat-
ment at Castlewood.

                  II.   Standard of Review

   We review de novo the district court’s decision on coverage
provided by an ERISA plan. Nolan v. Heald Coll., 551 F.3d
1148, 1153 (9th Cir. 2009) Like the district court, we review
the plan administrator’s decision whether to grant benefits for
abuse of discretion. Abatie v. Alta Health & Life Ins. Co., 458
F.3d 955, 959 (9th Cir. 2006) (en banc). In the ERISA con-
text, “a motion for summary judgment is merely the conduit
to bring the legal question before the district court and the
usual tests of summary judgment, such as whether a genuine
dispute of material fact exists, do not apply.” Nolan, 551 F.3d
at 1154 (internal quotation marks and citation omitted).

                        III.   Discussion

           A.   Plan Coverage of Residential Care

  For the reasons that follow, we conclude that Harlick’s
Plan, considered alone, does not provide coverage for her res-
idential care at Castlewood.

             1. Review for Abuse of Discretion

   [1] When we review an ERISA plan administrator’s denial
of benefits, the standard of review depends on whether the
plan explicitly grants the administrator discretion to interpret
the plan’s terms. Abatie, 458 F.3d at 967. The parties agree
that Harlick’s plan did grant Blue Shield such discretion. We
therefore review Blue Shield’s decision for abuse of discre-
tion. Id. However, our review is “tempered by skepticism”
6186         HARLICK v. BLUE SHIELD OF CALIFORNIA
when the plan administrator has a conflict of interest in decid-
ing whether to grant or deny benefits. Id. at 959, 968-69. In
such cases, the conflict is a “factor” in the abuse of discretion
review. Abatie, 458 F.3d at 966-68; accord Metro. Life Ins.
Co. v. Glenn, 554 U.S. 105, 108 (2008). The weight of that
factor depends on the severity of the conflict. Abatie, 458
F.3d at 968; Glenn, 554 U.S. at 108, 115-117.

   [2] A conflict arises most frequently where, as here, the
same entity makes the coverage decisions and pays for the
benefits. This dual role always creates a conflict of interest,
Glenn, 554 U.S. at 108, but the conflict is “more important
. . . where circumstances suggest a higher likelihood that it
affected the benefits decision.” Id. at 117. The conflict is less
important when the administrator takes “active steps to reduce
potential bias and to promote accuracy,” id., such as employ-
ing a “neutral, independent review process,” or segregating
employees who make coverage decisions from those who deal
with the company’s finances. Abatie, 458 F.3d at 969 n.7. The
conflict is given more weight if there is a “history of biased
claims administration.” Glenn, 554 U.S. at 117. Our review of
the administrator’s decision is also tempered by skepticism if
the administrator gave inconsistent reasons for a denial, failed
to provide full review of a claim, or failed to follow proper
procedures in denying the claim. See Lang v. Long-Term Dis-
ability Plan, 125 F.3d 794, 798-99 (9th Cir. 1997); Friedrich
v. Intel Corp., 181 F.3d 1105, 1110 (9th Cir. 1999).

   Harlick points to four factors that she argues should result
in our review of Blue Shield’s decision being tempered by
skepticism: (1) Blue Shield both makes coverage decisions
and pays benefits; (2) Blue Shield gave inconsistent reasons
for its denial of Harlick’s claim; (3) Blue Shield “never
explained why the California Mental Health Parity Act did
not require payment of [the] claim”; and (4) Blue Shield
excluded “residential treatment” from the Plan’s coverage
without defining the term. We take these factors in turn.
             HARLICK v. BLUE SHIELD OF CALIFORNIA           6187
   First, Blue Shield concedes that as plan administrator it
both makes coverage decisions and pays benefits. However,
the record before us does not indicate whether Blue Shield has
a history of bias in claims administration or whether it has
taken any steps to promote accurate decisionmaking. See
Glenn, 554 U.S. at 117; Abatie, 458 F.3d at 969 n.7.

   Second, Blue Shield also concedes that it gave Harlick
inconsistent information about why it would not pay for her
treatment at Castlewood. But Blue Shield argues that its mis-
takes were minor and quickly corrected. We disagree with
Blue Shield’s characterization of its mistakes. At the begin-
ning of the process, Watson spoke several times to Blue
Shield’s call center employees. According to Watson, they
gave her no useful information about whether treatment at
Castlewood would be covered. When Harlick entered Castle-
wood, Blue Shield paid without complaint for eleven days,
and then abruptly stopped paying. It took more than a year for
Blue Shield to explain that it had paid for the first eleven days
because of a “coding error.” Harlick and Watson received
four letters from four different Blue Shield representatives
explaining why treatment at Castlewood was not covered. The
first letter said that residential treatment was not covered. The
second letter said that residential treatment was not covered,
that treatment was not preauthorized, and that treatment was
not medically necessary, but that professional fees might be
covered. The third letter said that residential treatment and
professional fees were not covered. An employee then told
Watson on the telephone that professional fees might be cov-
ered. The fourth letter said that residential treatment was not
covered and professional fees were not covered. Blue Shield
eventually paid the professional fees. While there is no evi-
dence indicating that Blue Shield changed its explanations in
bad faith, or suggesting that Blue Shield was determined to
deny Harlick’s claim regardless of its validity, the combined
effect of its communications to Harlick and Watson was con-
fusing and frustrating.
6188         HARLICK v. BLUE SHIELD OF CALIFORNIA
   Third, Harlick argues that Blue Shield failed to explain why
the Mental Health Parity Act did not mandate coverage. This
argument is contradicted by the record. Carolyn Garner
explained in her April 30 letter why Blue Shield believed that
the Act did not mandate coverage.

   Fourth, it is true that Blue Shield denied coverage for “resi-
dential care” without ever defining the term. As discussed
below, however, we discern no real ambiguity in the meaning
of “residential care” in Harlick’s Plan, and there is no indica-
tion that Blue Shield exploited any uncertainty about the
meaning of “residential care.” Compare Grosz-Salomon v.
Paul Revere Life Ins. Co., 237 F.3d 1154, 1162 & n.33 (9th
Cir. 2001) (an employer may not exploit uncertainty that it
has created).

   [3] The net effect is that our review of Blue Shield’s denial
of coverage is for abuse of discretion, but tempered by some
skepticism because of Blue Shield’s structural conflict and its
changing explanations for denying coverage.

                2.   Coverage Under the Plan

   Harlick makes two arguments in support of her contention
that the Plan covers her treatment at Castlewood. First, she
argues that the Plan covers residential care. Second, she
argues, in the alternative, that her care at Castlewood qualifies
for coverage as care at a Skilled Nursing Facility. We find
both arguments unpersuasive.

                     a.   Residential Care

   An ERISA plan is a contract that we interpret “in an ordi-
nary and popular sense as would a [person] of average intelli-
gence and experience.” Gillam v. Nev. Power Co., 488 F.3d
1189, 1194 (9th Cir. 2007) (internal quotation marks and cita-
tion omitted). We look first to the “explicit language of the
agreement to determine, if possible, the clear intent of the par-
             HARLICK v. BLUE SHIELD OF CALIFORNIA             6189
ties,” and then to extrinsic evidence. Id. (internal quotation
marks and citation omitted). Harlick argues that the term “res-
idential care” in the Plan is ambiguous for two reasons. First,
she argues that “residential care” has no defined meaning in
the Plan. Second, she argues that the exclusion of residential
care is unclear because of its placement in the Plan. Specifi-
cally, she points out that the exclusion of “residential care”
occurs in the sections of the Plan that deal with inpatient hos-
pital care, suggesting that Blue Shield intended to exclude
coverage for residential care only in the context of hospitals.

   [4] Harlick’s own evidence shows, however, that “residen-
tial care” has a fairly well-established meaning in the context
of the treatment of mental illness, particularly eating disor-
ders. Castlewood’s website calls Castlewood a “residential
treatment facility.” An FAQ on Castlewood’s website
explains that Castlewood “is licensed as a ‘Residential’ facil-
ity, so it is important to obtain the residential benefit.” Harlick
argues in her opening brief that “residential treatment center”
is one of “five critical levels of care which should be consid-
ered for patients with an eating disorder,” and she quotes sev-
eral professional associations opining on the importance of
residential care for eating disorders. A survey done by the
California Department of Managed Health Care, discussed
below, specifically addresses coverage for residential care for
eating disorders. There may be disputes at the margin about
what qualifies as residential care, and it is certainly preferable
for a plan to define key terms. But there is no evidence of
actual confusion in this case about whether treatment at
Castlewood was “residential care.”

   We also disagree that the placement of the exclusion was
confusing. Every time the Plan says anything about inpatient
care for mental illness, it specifies that residential care is not
a covered benefit. The Plan states three times that residential
care is not covered. First, it states that “inpatient services” are
covered when they are connected with hospitalization, but
that “[r]esidential care is not covered.” Second, it states that
6190         HARLICK v. BLUE SHIELD OF CALIFORNIA
“[r]esidential care is not covered” in the section describing
payment responsibilities for inpatient professional and physi-
cian services. Third, it states that “[r]esidential care is not
covered” in the section describing payment responsibilities
for inpatient hospital treatment.

   [5] Blue Shield could have organized the Plan more clearly
— for example, it could have put an exclusion for residential
care in the “Principal Limitations” section — but the organi-
zation is neither illogical nor misleading. Residential care is
a type of inpatient care. A Plan subscriber wanting to know
whether residential care is covered would go to the sections
of the Plan describing coverage for inpatient care, and would
discover, each time inpatient care is mentioned, a statement
that residential care is not covered. Since the entire section of
the Plan dealing with treatment of mental illness is only six
pages long, these statements are not difficult to find. We
believe that a person “of average intelligence and experience”
would have no trouble concluding that the Plan does not cover
residential care. Compare Saltarelli v. Bob Baker Group Med.
Trust, 35 F.3d 382, 385-87 (9th Cir. 1994) (holding that
placement of exclusion was so inexplicable that exclusion was
unenforceable).

                 b.   Skilled Nursing Facility

   [6] Harlick argues, in the alternative, that Castlewood is a
Skilled Nursing Facility under the Plan. Harlick’s Plan covers
a maximum of 100 days of treatment each year at an SNF. A
“Skilled Nursing Facility” is defined in the Plan as “a facility
with a valid license issued by the California Department of
Health Services as a Skilled Nursing Facility or any similar
institution licensed under the laws of any other state, territory,
or foreign country.” The California licensing statute defines
an SNF as “a health facility that provides skilled nursing care
and supportive care to patients whose primary need is for
availability of skilled nursing care on an extended basis.” Cal.
Health & Safety Code § 1250(c). Among other things, an SNF
             HARLICK v. BLUE SHIELD OF CALIFORNIA              6191
in California must have “at least one registered nurse or a
licensed vocational nurse, awake and on duty, in the facility
at all times, day and night.” 22 Cal. Admin. Code § 72329(b)-
(d).

  Missouri, where Castlewood is located, also licenses SNFs.
Under Missouri law, an SNF is

    any premises, other than a residential care facility,
    assisted living facility, or an intermediate care facil-
    ity, which is utilized by its owner, operator, or man-
    ager, to provide for twenty-four (24) hour
    accommodation, board and skilled nursing care and
    treatment services to at least three (3) residents . . .
    Skilled nursing care and treatment services are those
    services commonly performed by or under the super-
    vision of a registered professional nurse for individu-
    als requiring twenty-four (24) hours a day care by
    licensed nursing personnel including acts of observa-
    tion, care, and counsel of the aged, ill, injured, or
    infirm, the administration of medications and treat-
    ments as prescribed by a licensed physician or den-
    tist, and other nursing functions requiring substantial
    specialized judgment and skill.

19 Mo. Code of State Regulations § 30-83.010(49).

   [7] Castlewood has no registered nurses, licensed voca-
tional nurses, or other nurses on its staff. It therefore does not
qualify as an SNF under either California or Missouri law.

   [8] Harlick points out that the Plan covers SNFs licensed
in California and “any similar institution licensed under the
laws of any other state, territory, or foreign country.” She
argues that Castlewood is a “similar institution” to an SNF,
providing care for mental rather than physical illness. Castle-
wood may provide mental illness care that is analogous to the
physical illness care that is provided in an SNF, but this does
6192         HARLICK v. BLUE SHIELD OF CALIFORNIA
not mean that Castlewood is a “similar institution” to an SNF
within the meaning of the Plan. The most natural reading of
the Plan’s language is that the Plan covers SNFs in California,
as well as institutions in other states that provide around-the-
clock nursing care for physical illnesses, even if they are
given a different name in those states. It was not an abuse of
discretion for the Plan administrator to conclude that Castle-
wood was not an SNF or a “similar institution licensed under
the laws of any other state” within the meaning of the Plan.

                B.     Mental Health Parity Act

  For the reasons that follow, we conclude that the Mental
Health Parity Act mandates that a plan within the scope of the
Act provide all “medically necessary treatment” for “severe
mental illnesses,” and that Harlick’s residential care at Castle-
wood was medically necessary.

                  1.     Overview of the Act

   [9] The California Mental Health Parity Act (“Parity Act”
or “Act”) was enacted in 1999. In enacting the statute, the
California legislature found that “[m]ost private health insur-
ance policies provide coverage for mental illness at levels far
below coverage for other physical illnesses.” 1999 Cal. Legis.
Serv. ch. 534 (A.B.88), § 1 (West). The legislature further
found that coverage limitations had resulted in inadequate
treatment of mental illnesses, causing “relapse and untold suf-
fering” for people with treatable mental illnesses, as well as
increases in homelessness, increases in crime, and significant
demands on the state budget. Id.

  To combat this disparity, the Parity Act provides, in perti-
nent part:

    (a) Every health care service plan contract issued,
    amended, or renewed on or after July 1, 2000, that
    provides hospital, medical, or surgical coverage shall
        HARLICK v. BLUE SHIELD OF CALIFORNIA              6193
provide coverage for the diagnosis and medically
necessary treatment of severe mental illnesses of a
person of any age . . . under the same terms and con-
ditions applied to other medical conditions as speci-
fied in subdivision (c).

(b) These benefits shall include the following:

    (1) Outpatient services.

    (2) Inpatient hospital services.

    (3) Partial hospital services.

    (4) Prescription drugs, if the plan contract
    includes coverage for prescription drugs.

(c) The 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) Maximum lifetime benefits.

    (2) Copayments.

    (3) Individual and family deductibles.

(d) For the purposes of this section, “severe mental
illnesses” shall include:

....

    (8) Anorexia nervosa.

    ....
6194         HARLICK v. BLUE SHIELD OF CALIFORNIA
Cal. Health & Safety Code § 1374.72 (emphasis added). It is
undisputed that Harlick’s Plan “provides hospital, medical, or
surgical coverage” and so comes within the scope of the Act.

    [10] Subsection (a) contains the Act’s basic mandate.
Briefly summarized, subsection (a) states that all plans that
come within the scope of the Act “shall provide coverage for
. . . medically necessary treatment of severe mental illnesses,”
including anorexia nervosa. That is, if treatment for a “severe
mental illness” is “medically necessary,” a plan that comes
within the scope of the Act must pay for that treatment. Sub-
section (a) contains only one limitation on the basic mandate
that coverage be provided for “medically necessary treatment
of severe mental illnesses”: such coverage must be provided
“under the same terms and conditions applied to other medi-
cal conditions as specified in subdivision (c).” The parties
agree that the phrase “terms and conditions” refers to mone-
tary conditions, such as copayments and deductibles. Thus,
plans need not provide more generous financial terms for cov-
erage for severe mental illnesses than they provide for cover-
age of physical illnesses. For instance, if a plan has a twenty
dollar deductible for each office visit to treat a physical ill-
ness, it may also have a twenty dollar deductible for each
office visit to treat a severe mental illness.

   Subsection (b) states that “[t]hese benefits” must be offered
by a plan that comes within the scope of the Act, and lists four
specific required benefits. The wording of subsection (b) is
potentially confusing. The phrase “these benefits” suggests
that subsection (b) refers back to subsection (a), but subsec-
tion (a) never uses the word “benefits.” Harlick contends, and
Blue Shield does not dispute, that the phrase “these benefits”
refers to the phrase “coverage for the diagnosis and medically
necessary treatment.” Thus, the required coverage “shall
include” all the benefits listed in subsection (b) — outpatient,
inpatient, and partial hospital services, and, in some circum-
stances, prescription drug services. As we discuss below, the
list of benefits in subsection (b) is not exhaustive.
             HARLICK v. BLUE SHIELD OF CALIFORNIA           6195
   Subsection (c) gives three illustrative examples of “terms
and conditions” that must apply equally to coverage for men-
tal and physical illnesses: maximum lifetime benefits, copay-
ments, and deductibles. As explained above, the parties agree
that “terms and conditions” refers only to financial terms and
conditions.

   Finally, subsection (d) lists nine “severe mental illnesses”
for which coverage for “medically necessary treatment” is
mandated. Mental illnesses that are not “severe” are not
included in the Parity Act. Anorexia nervosa is one of the
listed severe mental illnesses.

   [11] In summary, plans that come within the scope of the
Act must cover all “medically necessary” treatment for “se-
vere mental illnesses,” including the nine illnesses specifically
listed, but can apply the same financial conditions — such as
deductibles and lifetime benefits — that are applied to cover-
age for physical illnesses.

        2.    Benefits Required under the Parity Act

   [12] Blue Shield contends that residential care is not a ben-
efit that it must provide under the Parity Act for a severe men-
tal illness, even if such care is medically necessary. The
district court did not reach this question. Because the parties
presented the question both to the district court and to us, and
because the record is developed, it is appropriate for us to
reach it. See Dole Food Co., Inc. v. Watts, 303 F.3d 1104,
1117-18 (9th Cir. 2002).

             a.   Statutory and Regulatory Text

   [13] We begin with the text of the Parity Act and its imple-
menting regulation. See United States v. Nader, 542 F.3d 713,
717 (9th Cir. 2008). Subsection (b) of the Act provides that
“benefits shall include” outpatient services, inpatient hospital
services, partial hospitalization services, and prescription
6196         HARLICK v. BLUE SHIELD OF CALIFORNIA
drugs if the plan includes coverage for prescription drugs.
Thus, the coverage required under subsection (a) must
include, at a minimum, those four treatments. Subsection (b)
does not mention “residential care” as a covered benefit, so a
threshold question is whether the list of benefits in subsection
(b) is an exhaustive list of treatments that can qualify as
“medically necessary.”

   Subsection (b) of the Act says that benefits “shall include”
the four listed treatments, but it does not explicitly say
whether the list is exhaustive. By contrast, the list of “terms
and conditions” in subsection (c) of the Act is explicitly char-
acterized as a non-exhaustive list. Cal. Health & Safety Code
§ 1374.72(c) (“The terms and conditions . . . shall include, but
not be limited to, the following.”). At least two district courts
have concluded that the difference in wording means that the
list of benefits in subsection (b) is exhaustive. Wayne W. v.
Blue Cross of Cal., No. 1:07-CV-00035, 2007 WL 3243610,
at *4 (D. Utah Nov. 1, 2007); Daniel F. v. Blue Shield of Cal.,
No. C09-2037, 2011 WL 830623, at *8-9 (N.D. Cal. Mar. 3,
2011).

   [14] However, the California Department of Managed
Health Care (“DMHC”), promulgated a regulation imple-
menting the Parity Act in 2003. The regulation makes clear
that the list of benefits in subsection (b) of the Act is not
exhaustive. The regulation provides:

    The mental health services required for the diagno-
    sis, and treatment of conditions set forth in Health
    and Safety Code section 1374.72 [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 within the
    meaning of Health and Safety Code sections 1345(b)
    and 1367(i), and section 1300.67 of Title 28.

28 Cal. Admin. Code § 1300.74.72(a) (emphasis added). The
words “including, but not limited to” in the regulation suggest
             HARLICK v. BLUE SHIELD OF CALIFORNIA            6197
that the list of benefits in subsection (b) of the Act, as well as
the “basic health care services” specified in the regulation, are
illustrative rather than exhaustive.

   Blue Shield agrees that the list of four benefits specified in
subsection (b) of the Parity Act is not exhaustive and that it
is required to provide additional services under § 1300.74.72
that are not listed in subsection (b). (That is, Blue Shield dis-
agrees with the two district courts, supra, that have concluded
that the list in subsection (b) is exhastive.) Subsection (b) of
the Parity Act specifies only the following as required bene-
fits: “(1) Outpatient services. (2) Inpatient hospital services.
(3) Partial hospital services. (4) Prescription drugs, if the plan
contract includes coverage for prescription drugs.” Cal.
Health & Safety Code § 1374.72(b). Blue Shield recognizes
that the Parity Act’s implementing regulation specifies that all
the benefits listed in California Health & Safety Code
§ 1345(b) are covered by the Parity Act, in addition to the
four benefits specified in part (b) of the Act. Section 1345(b)
was originally passed as part of the Knox-Keene Act of 1975,
which requires basic services appropriate to physical illnesses.
In its current form, § 1345(b) provides:

    “Basic health care services” means all of the follow-
    ing:

         (1) Physician services, including consulta-
         tion and referral.

         (2) Hospital inpatient services and ambula-
         tory care services.

         (3) Diagnostic laboratory and diagnostic
         and therapeutic radiologic care services.

         (4) Home health care services.

         (5) Preventive health services.
6198         HARLICK v. BLUE SHIELD OF CALIFORNIA
         (6) Emergency health care services, includ-
         ing ambulance and ambulance transport
         services and out-of-area coverage. . . .

         (7) Hospice care pursuant to Section
         1368.2.

   Despite the mandate in section (a) of the Parity Act of cov-
erage for “medically necessary treatment of severe mental ill-
nesses, and despite its recognition that the list of mandated
benefits in section (b) of the Act is not exhaustive, Blue
Shield argues that the Act and its implementing regulation do
not require coverage of all “medically necessary treatment for
severe mental illnesses.” Blue Shield argues for a three-prong
test that would determine whether a “medically necessary”
treatment must be covered. Blue Shield argues in its brief that
“a particular ‘medically necessary’ treatment must be pro-
vided for the treatment of severe mental illness if: (1) it is a
level of care specified in subsection (b) of the Parity Act; (2)
it is a ‘basic health care service’ required under Cal. Health
& Safety Code § 1345(b) . . . ; or (3) it is an additional (non-
mandated) benefit that the plan has chosen to provide for the
treatment of physical conditions.”

  Blue Shield supports its argument by citing the Parity Act’s
implementing regulation, which we quoted above. Blue
Shield writes in its brief that this regulation

    states that the mental health services required under
    the Parity Act “shall include, when medically neces-
    sary, all health care services required under the
    [Knox-Keene] Act, including, but not limited to,
    basic health care services within the meaning of [the
    statutory provisions].”

(quoting § 1300.74.72(a); italics, “[Knox-Keene]”, and “[the
statutory provisions]” added by Blue Shield). The Knox-
Keene Act regulates insurance coverage of physical illness,
             HARLICK v. BLUE SHIELD OF CALIFORNIA         6199
without restriction on the type or severity of the illness.
Unlike the Parity Act, it is not limited to “severe” illnesses.
The Knox-Keene Act does not mandate coverage of all medi-
cally necessary treatments for physical illnesses. Cal. Health
& Safety Code §§ 1345(b), 1367(i); 28 Cal. Admin. Code
§ 1300.67. Blue Shield contends that under the regulation,
coverage mandated by the Parity Act for severe mental ill-
nesses is no greater than coverage mandated by the Knox-
Keene Act for physical illnesses.

   The regulation implementing the Parity Act does not spec-
ify whether the “Act” to which it refers without specification
is the Knox-Keene Act or the Parity Act. We are willing to
assume, as Blue Shield assumes, that the word “Act” refers to
the Knox-Keene Act. Administrative Code § 1300.45 pro-
vides definitions for terms used in health care regulations.
Section 1300.45(a), promulgated in 1976, defines “Act” to
mean “the Knox-Keene Health Care Service Plan Act of
1975.” See also Arce v. Kaiser Foundation Health Plan, Inc.,
181 Cal. App.4th 471, 492 (2010) (inserting “Knox-Keene” in
brackets when quoting § 1300.74.72(a)). But see Daniel F. v.
California Physicians’ Service, 2009 WL 2581303 at *6
(N.D.Cal. Aug. 20, 2009)) (observing that § 1300.74.72(a)
“provides that the mental health services required under
§ 1374.72 shall include all health care services required under
the Parity Act” (emphasis added)). But it does not follow that
the coverage for severe mental illnesses mandated by the
Mental Health Parity Act is restricted to the coverage for
physical illnesses mandated by the Knox-Keene Act.

   The implementing regulation for the Parity Act provides, as
noted above, that the mandated coverage of the Parity Act
“shall include, when medically necessary, all health care ser-
vices required under the Act, including but not limited to,
basic health care services within the meaning of § 1345(b)[.]”
§ 1300.74.72(a) (emphasis added). In quoting the regulation,
Blue Shield plays down the importance of the phrase “includ-
ing but not limited to” by italicizing the words preceding and
6200         HARLICK v. BLUE SHIELD OF CALIFORNIA
following that phrase. But the phrase is critical. It makes clear
that the Parity Act mandates coverage of the “basic health
care services” appropriate to physical illnesses specified in
§ 1345(b), and that the Parity Act’s mandated coverage for
severe mental illnesses includes but is not limited to those
basic health care services.

   During the notice-and-comment process leading up to the
promulgation of § 1300.74.72, Blue Shield made the same
argument about the mandated coverage of the Parity Act that
it now makes to us. The DMHC unambiguously rejected Blue
Shield’s argument.

  Blue Shield wrote to the DMHC during the comment
period, stating that it was concerned that the Parity Act might
be interpreted to require that a plan cover all “medically nec-
essary treatments.” Blue Shield wrote:

    [W]e are concerned that the language in proposed
    subsection (a) [of the proposed regulation] could be
    construed to require the plan to provide coverage for
    any and all medically necessary services for [cov-
    ered mental health conditions] notwithstanding that
    the services are not basic health services and are not
    otherwise covered by the enrollees benefit plan for
    other conditions (e.g., residential treatment, prescrip-
    tion drugs if not otherwise covered, etc). Therefore,
    we would recommend that a more direct approach be
    taken with respect to this provision and would offer
    the following as replacement language for subsection
    (a):

         “The health services required to be pro-
         vided by a plan for an enrollee with a
         severe mental illness . . . shall include all
         benefits and services provided to enrollees
         under the same subscriber contract as for
         other health conditions. Such coverage shall
             HARLICK v. BLUE SHIELD OF CALIFORNIA          6201
         not otherwise be limited only to basic
         health care services within the meaning of
         Section 1345(b) of the Act and Section
         1300.67 of Title 28.”

Letter from Lyle S. Swallow, Associate General Counsel,
Blue Shield of California, to Curtis Leavitt, Assistant Chief
Counsel, DMHC (Sept. 25, 2002). The language suggested by
Blue Shield is the functional equivalent of the language in the
third prong of the three-prong test for which it has argued
here.

   The DMHC responded, rejecting Blue Shield’s suggested
language. It wrote:

    REJECT. Health & Safety Code section 1374.72
    requires health plans to provide mental health cover-
    age for specified mental conditions, to the same
    extent as the health plan covers other medical condi-
    tions. The regulation must be read and applied so as
    to interpret, make specific, or clarify a statute. Given
    that the statute requires parity in coverage, the com-
    mentator’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 lan-
    guage makes clear that plans cannot limit mental
    health coverage to anything less than what is medi-
    cally necessary and on parity with other health cov-
    erage provided by the plan.

DMHC Mental Health Parity, Responses to Comments, 1st
Comment Period, 8/16 – 9/30/2002, at 1.

   The DMHC’s response clearly rejected Blue Shield’s inter-
pretation of the Act, but did not explicitly say that plans had
to cover all medically necessary treatment for the listed men-
tal illnesses. But the DMHC’s response to other comments
6202         HARLICK v. BLUE SHIELD OF CALIFORNIA
was very explicit on this point. One commentator had sug-
gested that DMHC “should look at developing a list of ser-
vices specific to mental health care that will capture all those
services needed for the state to provide full parity coverage.”
Id. at 2. The DMHC wrote in response:

    REJECT. It is not appropriate to list all services that
    a plan must provide in order to meet the obligations
    of section 1374.72 [the Parity Act]. Beyond specify-
    ing some of the essential services in the amended
    section 1300.74.72(b), it is sufficient to state that the
    plans must provide all medically necessary services.
    To the extent that certain services are medically nec-
    essary, then those services will be provided.

Id. (emphasis added). Another commentator had made a simi-
lar suggestion, and the DMHC gave the same response. See
id. at 18 (“[I]t is not appropriate to list all services, including
‘rehabilitative services,’ that a plan must provide in order to
meet the obligations of section 1374.72. It is sufficient that
plans provide all medically necessary services. To the extent
that certain rehabilitative services are medically necessary,
then those services will be provided.”).

   If additional demonstration of the incorrectness of Blue
Shield’s argument is necessary, we point to subsection (b)(4)
of the Parity Act. Subsection (b)(4) provides that plans within
the scope of the Act 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 prescrip-
tion drugs for severe mental illnesses, even if they are medi-
cally necessary, unless the plan covers such drugs for physical
illnesses. The Parity Act’s specific carve-out from the cover-
age mandate for medically necessary prescription drugs indi-
cates 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.
             HARLICK v. BLUE SHIELD OF CALIFORNIA             6203
   Further, Blue Shield’s argument lacks support in common
sense. Some medically necessary treatments for severe mental
illness have no analogue in treatments for physical illnesses.
For example, it makes no sense in a case such as Harlick’s to
pay for time in a Skilled Nursing Facility — which cannot
effectively treat her anorexia nervosa — but not to pay for
time in a residential treatment facility that specializes in treat-
ing eating disorders.

   Finally, the Parity Act and the Knox-Keene Act operate in
fundamentally different ways. Mandated coverage under the
Parity Act applies to nine specified “severe” mental illnesses.
The Act does not mandate coverage for non-severe mental ill-
nesses. By contrast, the Knox-Keene Act mandates coverage
for all physical illnesses, severe or otherwise. This distinction
explains the difference in required coverage under the Parity
and Knox-Keene Acts. The Parity Act, which applies to a nar-
row subset of mental illnesses, requires coverage for all medi-
cally necessary treatments for those illnesses. It limits insurer
liability by limiting the illnesses to which it applies, not by
limiting medically necessary treatments. The Knox-Keene
Act, on the other hand, contains no limits on the illnesses for
which coverage is required. Rather, it limits insurer liability
by limiting medically necessary treatments. Because the Par-
ity Act applies to severe mental illnesses, some of which are
life-threatening, it makes sense that the Act requires insurers
to cover all medically necessary treatments. It makes equal
sense that the Knox-Keene Act, which applies to the full
range of physical illnesses, does not require insurers to cover
all medically necessary treatments.

   Although there is no caselaw directly on point, a recent
opinion by a California Court of Appeal supports our conclu-
sion. In Arce v. Kaiser Foundation Health Plan, the issue was
the certification of a plaintiff class in a suit under the Parity
Act. The court had no occasion to explicitly hold that the
phrase “medically necessary treatment” in the Parity Act
means all medically necessary treatment, but the court’s anal-
6204         HARLICK v. BLUE SHIELD OF CALIFORNIA
ysis appears to assume that this is the meaning of the Act. The
court wrote:

     In sustaining [Kaiser’s] demurrer, it appears that the
     trial court assumed that Arce could only prove a vio-
     lation of the Mental Health Parity Act if he could
     demonstrate that the therapies at issue were medi-
     cally necessary for the putative class members and
     that Kaiser denied coverage based on a determina-
     tion that they were not. While that is one means of
     establishing a violation [of] the statute, it is not the
     exclusive means. It is possible that Arce also could
     prove a statutory violation by showing that Kaiser
     categorically denies coverage for mental health care
     services that may, in some circumstances, be medi-
     cally necessary . . . for its individual plan members.

181 Cal. App. 4th at 493.

b.     Positions Taken by the Department of Managed Health
                             Care

   [15] Blue Shield contends that the California Department
of Managed Health Care (“DMHC”) has taken the position
that the Parity Act does not mandate that all “medically neces-
sary treatments” for enumerated “severe mental illnesses” be
covered. It is more accurate to say that the DMHC has taken
more than one position on this issue.

   Under California law, the deference a court should accord
to an agency’s interpretation of a statute is “fundamentally sit-
uational.” Yamaha Corp. of Am. v. State Bd. of Equalization,
19 Cal. 4th 1, 12 (1998) (emphasis omitted). Judicial defer-
ence to an agency’s interpretation “turns on a legally
informed, commonsense assessment of [its] contextual merit.”
Id. at 14. A court should consider factors “indicating that the
agency has a comparative interpretive advantage over the
courts” and factors “indicating that the interpretation in ques-
             HARLICK v. BLUE SHIELD OF CALIFORNIA           6205
tion is probably correct.” Id. at 12 (internal quotation marks
and citation omitted). An agency will have a comparative
advantage over courts, for example, if the subject matter of
the statute is especially technical or complex, or if the agency
is interpreting its own regulation. Id. An agency’s interpreta-
tion is more likely to be correct when the interpretation has
gone through formal notice-and-comment rulemaking, when
there are “indications of careful consideration by senior
agency officials,” or when the agency has maintained a con-
sistent interpretation over time. Id. at 13.

   We discussed above the DMHC’s statements during the
notice-and-comment process leading up to the promulgation
of § 1300.74.72 that the Act mandates that plans cover all
“medically necessary treatments” for “severe mental illness-
es.” We will not repeat that discussion here.

   Blue Shield contends that the DMHC has taken a contrary
position on three occasions. First, Blue Shield points to Con-
sumer Watchdog v. California DMHC, No. BS121397 (Super.
Ct. Cal. filed June 30, 2009), in which the DMHC demurred
to a complaint seeking coverage of medically necessary treat-
ment for autism by providers not licensed in California. The
DMHC described the question presented as follows:

    Petitioners allege the Department must order plans to
    cover all medically necessary ABA therapy where it
    is provided by a professional who is unlicensed in
    California. Does the law command the Department
    to order coverage in every such extreme case?

Memorandum of Points and Authorities in Support of Demur-
rer at 1, Consumer Watchdog, No. BS121397 (Super. Ct. Cal.
Aug. 7, 2009). The DMHC argued that the Parity Act did not
require coverage of treatment for autism when the provider
was unlicensed, even if the treatment was medically neces-
sary.
6206         HARLICK v. BLUE SHIELD OF CALIFORNIA
   Positions taken by an agency for purposes of litigation ordi-
narily receive little deference under California law. See
Yahama, 19 Cal. 4th at 23-24 (citing Culligan Water Condi-
tioning v. State Bd. of Equalization, 17 Cal. 3d 86 (1976)).
This is particularly so where, as here, the agency adopts a liti-
gating position that is inconsistent with an interpretation it has
previously expressed. See Yamaha, 19 Cal. 4th at 13. More-
over, the DMHC put forth no persuasive arguments in support
of its position in the demurrer. Our skepticism about the
DMHC’s litigating position was shared by the Superior Court,
which overruled the demurrer and held that the Act requires
that plans cover medically necessary treatment by unlicensed
providers “unless they have licensed providers who will pro-
vide the same services.” Decision on Demurrer at 7, Con-
sumer Watchdog, No. BS121397 (Super. Ct. Cal. Oct. 20,
2009). Although somewhat cryptic, a later decision on a writ
of mandate in the same case appears to be consistent with the
decision on the demurrer. Decision Re: Petition for Writ of
Mandate, Consumer Watchdog, No. BS121397 (Super. Ct.
Cal. Dec. 20, 2010).

   Second, Blue Shield points to a survey conducted in 2005
by the DMHC as part of a “preliminary analysis on mental
health parity.” Problems identified in the survey included a
lack of high-quality residential treatment centers for eating
disorders, as well as “significant variation” in plan coverage
of residential care for such disorders. Seven plans were stud-
ied, though the coverages of only six were described. One
plan had “made a policy decision that, under parity, [residen-
tial treatment center] services are covered for all age groups
and are comparable to skilled nursing home facility services.”
Four plans covered residential treatment as an optional bene-
fit. One plan did not “routinely” offer residential treatment
coverage; under this plan, residential treatment coverage was
not a benefit “for most enrollees.”

  Blue Shield argues that if the DMHC had interpreted the
Parity Act to require residential care, it would have ordered
            HARLICK v. BLUE SHIELD OF CALIFORNIA               6207
all seven plans to cover such care. We are not convinced that
this is so. The DMHC was conducting a survey of residential
treatment coverage as part of a larger preliminary study of
mental health parity. The study was not — and was not
designed to be — an enforcement proceeding.

  Third, Blue Shield points to the May 25, 2007, letter from
DMHC Senior Counsel Andrew George to Harlick. After
reviewing a complaint from Harlick’s mother Robin Watson
about Blue Shield’s refusal to cover Harlick’s care at Castle-
wood, George wrote:

    After reviewing all of the information submitted, we
    are unable to direct Blue Shield to cover these ser-
    vices. According to the terms of your health plan
    contract, . . . residential care is excluded from cover-
    age. As Castlewood is licensed as a residential treat-
    ment center, rather than an acute in-patient facility,
    Blue Shield is not obligated to provide coverage for
    this treatment.

Blue Shield argues that George’s letter shows that the Parity
Act does not mandate coverage for medically necessary treat-
ment for anorexia nervosa in a residential care facility.

   Blue Shield misunderstands the scope of the DMHC’s
review and the purpose of George’s letter. Upon request, the
DMHC will review a plan’s refusal to cover care based on a
determination that the care was not medically necessary. See
Cal. Health & Safety Code § 1374.30(b), (d). This review is
called an “independent medical review.” Id. Such a review
deals solely with the question whether treatment was medi-
cally necessary for a particular patient. Id. The DMHC does
not decide whether a plan should generally cover a particular
treatment. Id.

  It is clear that George’s review of Harlick’s complaint was
an “independent medical review” under § 1374.30. Watson
6208           HARLICK v. BLUE SHIELD OF CALIFORNIA
sent the complaint on April 9, 2007, and it was forwarded to
the DMHC on April 19, 2007. On April 24, 2007, the DMHC
sent Blue Shield an “Independent Medical Review Request
for Health Plan Information” questionnaire. The cover sheet
said, “The Department of Managed Health Care has received
the attached request for an Independent Medical Review.” On
April 30, Blue Shield employee Carolyn Garner sent a letter
to Harlick noting her “understanding that you have submitted
an Application for Independent Medical Review to the Cali-
fornia Department of Managed [H]ealth Care.” On May 15,
George sent a letter of inquiry to Blue Shield. The letter
focused on medical necessity. It never mentioned the Parity
Act. On May 23, Blue Shield employee Joan Russo wrote a
letter to George explaining that the refusal to cover the treat-
ment was based on the terms of the Plan. Her letter never
mentioned the Parity Act. Once George learned that Blue
Shield’s refusal was a coverage decision, he sent a letter ter-
minating the review two days later, on May 25. This letter,
too, never mentioned the Parity Act. George’s May 25 letter
establishes only that the DMHC terminated its “independent
medical review” under § 1374.30 once it determined that Blue
Shield’s denial was not based on a lack of medical necessity.
It does not establish that the DMHC approved of Blue
Shield’s decision not to cover residential care at all.

                         c.   Summary

   [16] We conclude that the 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 ill-
nesses.

          C.    Medical Necessity in Harlick’s Case

   [17] The remaining question is whether Harlick’s residen-
tial care at Castlewood was medically necessary. Blue Shield,
             HARLICK v. BLUE SHIELD OF CALIFORNIA           6209
as the plan administrator, normally makes the medical neces-
sity determination in the first instance. Sarchett v. Blue Shield
of Cal., 43 Cal. 3d 1, 9-10 (1987). Blue Shield did not dispute
that treatment at Castlewood was medically necessary until
supplemental briefing filed after oral argument in this Court.
Blue Shield now argues that it should be allowed to reopen its
administrative process in order to determine whether Har-
lick’s residential care was medically necessary.

   An ERISA plan administrator who denies a claim must
explain the “specific reasons for such denial” and provide a
“full and fair review” of the denial. 29 U.S.C. § 1133. The
administrator must also give the claimant information about
the denial, including the “specific plan provisions” on which
it is based and “any additional material or information neces-
sary for the claimant to perfect the claim.” 29 C.F.R.
§ 2560.503-1(g). A plan administrator may not fail to give a
reason for a benefits denial during the administrative process
and then raise that reason for the first time when the denial is
challenged in federal court, unless the plan beneficiary has
waived any objection to the reason being advanced for the
first time during the judicial proceeding.

   Nevertheless, Blue Shield contends that remand is required
under Vizcaino v. Microsoft Corporation. 120 F.3d 1006 (9th
Cir. 1997) (en banc). Blue Shield misreads Vizcaino. In that
case, the plan administrator had failed to give a particular rea-
son for its denial of benefits under the plan, but the plaintiffs
explicitly waived, in both the district court and the court of
appeals, any objection to that reason being asserted in federal
court in defense of the administrator’s denial. Indeed, after
initially objecting in the district court, plaintiffs “urged the
magistrate judge to address” the plan administrator’s late-
raised argument. Vizcaino v. Microsoft Corp., 97 F.3d 1187,
1193 (9th Cir. 1996) (panel decision). The plaintiffs took the
same position on appeal. Vizcaino, 120 F.3d at 1013. We
therefore allowed the late-raised reason to be urged in support
6210         HARLICK v. BLUE SHIELD OF CALIFORNIA
of the administrator’s denial, but remanded for the administra-
tor to evaluate the reason in the first instance. Id. at 1014.

   [18] The general rule, both before and after Vizcaino, in
this circuit and in others, is that a court will not allow an
ERISA plan administrator to assert a reason for denial of ben-
efits that it had not given during the administrative process.
We wrote recently:

    Requiring that plan administrators provide a partici-
    pant with specific reasons for denial “enable[s] the
    claimant to prepare adequately for any further
    administrative review, as well as appeal to the fed-
    eral courts.” “[A] contrary rule would allow claim-
    ants, who are entitled to sue once a claim has been
    ‘deemed denied,’ to be ‘sandbagged’ by a rationale
    the plan administrator adduces only after the suit has
    commenced.”

Mitchell v. CB Richard Ellis Long Term Disability Plan, 611
F.3d 1192, 1199 n.2 (9th Cir. 2010) (quoting Halpin v. W.W.
Grainger, Inc., 962 F.2d 685, 689 (9th Cir. 1992), and Jebian
v. Hewlett-Packard Co., Employee Benefits Org. Income Prot.
Plan, 349 F.3d 1098, 1104 (9th Cir. 2003)). ERISA and its
implementing regulations are undermined “ ‘where plan
administrators have available sufficient information to assert
a basis for denial of benefits, but choose to hold that basis in
reserve rather than communicate it to the beneficiary.’ ” Id.
(quoting Glista v. Unum Life Ins. Co. of Am., 378 F.3d 113,
129 (1st Cir. 2004)).

   [19] During the administrative process, Blue Shield never
said that it was denying Harlick’s claims on the ground that
treatment at Castlewood was not medically necessary. Only
once during its extensive communication with Harlick and
Watson did Blue Shield even suggest that medical necessity
might be an issue. In a letter containing other errors, one Blue
Shield employee said that coverage for treatment at Castle-
             HARLICK v. BLUE SHIELD OF CALIFORNIA           6211
wood was denied in part because medical necessity had not
been established for a four-month period. But in a letter a few
weeks later, a different Blue Shield employee reiterated that
Castlewood was not covered because it was a residential facil-
ity. From that time on, Harlick was told only that Blue Shield
would not pay for her care at Castlewood because her cover-
age did not extend to residential care. Blue Shield Senior
Manager in the Law Department, Joan Russo, explained in a
letter to Watson:

    The Plan is not arguing that Jeanene was not in need
    of care and treatment for her condition. However, it
    is the Plan’s position that Jeanene was in a residen-
    tial treatment program at Castlewood and according
    to the terms of her Shield Spectrum PPO Plan, resi-
    dential care is not covered.

   Blue Shield also told the DMHC that the denial was not
based on medical necessity. During the independent medical
review, George sent Blue Shield a form about the claim
denial. The form began, “The health plan’s reason for the
denial was based on which of the following determinations:
(Check the appropriate boxes) — Benefit/Coverage, Experi-
mental/Investigational Treatment, Medical Necessity,
ER/Urgent Care Reimbursement.” Blue Shield checked “Ben-
efit/Coverage,” but did not check “Medical Necessity.”
George terminated the “independent medical review” because
such a review deals only with medical necessity, and Blue
Shield had not raised any issue of medical necessity.

   Blue Shield had discretion to determine whether treatment
was medically necessary during the administrative review
process of Harlick’s claim. But Blue Shield had to tell Harlick
the “specific reasons for the denial” — not just one reason,
if there was more than one — and provide a “full and fair
review” of the denial. 29 U.S.C. § 1133 (emphases added).
Blue Shield told both Harlick and her mother, as well as the
DMHC, that medical necessity was not the reason for its
6212         HARLICK v. BLUE SHIELD OF CALIFORNIA
denial of Harlick’s claim. It cannot now bring out a reason
that it has “held in reserve” and commence a new round of
review. See Mitchell, 611 F.3d at 1199 n.2.

   [20] Given that Harlick’s doctors believed that outpatient
treatment was insufficient, that Harlick entered Castlewood at
65% of her ideal body weight, and that Harlick needed a feed-
ing tube while at Castlewood, it appears that inpatient residen-
tial treatment was indeed necessary. But we need not decide
that question. By failing to assert during the administrative
process that medical necessity was a reason for denying Har-
lick’s claim, Blue Shield forfeited the ability to assert that
defense in the litigation now before us.

                          Conclusion

   [21] Harlick’s Plan does not itself require that Blue Shield
pay for residential care at Castlewood for her anorexia ner-
vosa. However, California’s Mental Health Parity Act pro-
vides that Blue Shield “shall provide coverage for the
diagnosis and medically necessary treatment” of “severe men-
tal illnesses,” including anorexia nervosa, for plans coming
within the scope of the Act. It is undisputed that Harlick’s
plan comes within the scope of the Act. Blue Shield is fore-
closed from asserting that Harlick’s residential care at Castle-
wood was not medically necessary. We therefore conclude
that Blue Shield is obligated under the Parity Act to pay for
Harlick’s residential care at Castlewood, subject to the same
financial terms and conditions it imposes on coverage for
physical illnesses.

  REVERSED.



N.R. SMITH, Circuit Judge, dissenting in part and concurring
in part:

   In our original opinion, we interpreted the word “Act” in
the Parity Act’s 2003 implementing regulation (Cal. Code
             HARLICK v. BLUE SHIELD OF CALIFORNIA           6213
Regs. tit. 28, § 1300.74.72(a)) to refer to the “Parity Act.” See
Harlick v. Blue Shield of California, 656 F.3d 832, 845 (9th
Cir. 2011). In my view, this interpretation of the word “Act”
provided the lynchpin for our conclusion that the Parity Act
was not limited by the provisions of the Knox–Keene Act.
Therefore, we determined that the Parity Act mandated cover-
age for all “medically necessary” services by medical insur-
ers. However, in Blue Shield’s Petition for Rehearing and
Petition for Rehearing En Banc, Blue Shield argued for the
first time that California’s Administrative Code Section
1300.45(a) (promulgated in 1976) defines “Act” to mean “the
Knox–Keene Health Care Service Plan Act of 1975.” See Cal.
Code Regs. tit. 28, § 1400.45(a).

   After consideration of this argument, the panel now unani-
mously agrees that we incorrectly interpreted the text of the
Parity Act’s implementation regulation in our original opin-
ion. The majority’s amended opinion reflects our change in
interpretation. See Revised Maj. Op. 6199 (“We are willing to
assume, as Blue Shield assumes, that the word ‘Act’ refers to
the Knox–Keene Act.”). Yet despite this significant change in
our textual interpretation, the majority remains convinced that
our original interpretation of the Parity Act was still correct
based on conflicting legislative history and “common sense.”
Revised Maj. Op. 6203.

   I see it differently and am surprised by the majority’s con-
clusion. Once we agree that the word “Act” is referencing the
Knox–Keene Act, the majority’s conclusion that “it does not
follow that the coverage for severe mental illnesses mandated
by the Mental Health Parity Act is restricted to the coverage
for physical illnesses mandated by the Knox-Keene Act,” is
a non sequitur. Revised Maj. Op. 6199. This reference acts as
a statutory limit on the type of benefits that insurers are
required to cover. Thus, only the interpretation of the Parity
Act that adheres to this text is appropriate. Under this inter-
pretation, an insurer need only provide services specifically
required under the Parity Act and its implementing regulation,
6214         HARLICK v. BLUE SHIELD OF CALIFORNIA
unless the insurer has voluntarily chosen to provide a non-
mandated benefit for a physical condition and must therefore
offer additional mental health benefits in parity with that cov-
erage. Accordingly, “medical necessity” is necessary, but not
independently sufficient for mental health coverage.

  I.   The Text of the Parity Act and Its Implementing
                        Regulation

   The Parity Act was passed in 1999, because “most private
health insurance policies provide coverage for mental illness
at levels far below coverage for other physical illnesses.”
1999 Cal. Stat. 3701. Thus, the Parity Act sought to ensure
that mental health coverage would be provided in parity, or
equal measure, as physical health coverage. As the majority
has correctly summarized, all plans (coming within the scope
of the Act) were mandated to provide coverage for “medically
necessary treatment of severe mental illnesses.” Cal. Health &
Safety Code § 1374.72(a). Subsection (b) of Section 1374.72
provides that “benefits shall include” outpatient services,
inpatient hospital services, partial hospitalization services, and
prescription drugs if the plan includes coverage for prescrip-
tion drugs. Thus, the majority correctly notes that the impor-
tant “threshold question is whether the list of benefits in
subsection (b) is an exhaustive list of treatments that can qual-
ify as ‘medically necessary.’ ” Revised Maj. Op. 6196.

   The majority notes that at least two district courts have
interpreted language, similar to section (b) language, to indi-
cate an exhaustive list. Revised Maj. Op. 6196 (citing Wayne
W. v. Blue Cross of Cal., No. 1:07-CV-00035, 2007 WL
3243610, at *4 (D. Utah Nov. 1, 2007); Daniel F. v. Blue
Shield of Cal., No. C09-2037, 2011 WL 830623, at *8-9
(N.D. Cal. Mar. 3, 2011)). Specifically, the district court in
Daniel F. arrived at a very similar conclusion to the one that
Blue Shield advocates here. 2011 WL 830623, at *8 (noting
that “the Parity Act does not require that insurers cover resi-
dential treatment, and does not require coverage for all ‘medi-
             HARLICK v. BLUE SHIELD OF CALIFORNIA           6215
cally necessary health care service”; rather, only the specific
benefits enumerated under the Parity Act are required, as well
as benefits voluntarily “provided under a given plan”; thus “if
the plan at issue covers hospitalization for physical illness
where medically necessary, it must cover hospitalization for
mental illness where medically necessary”). I agree that this
interpretation is a consistent interpretation of the Parity Act,
because the services specifically required under the Parity Act
and its implementing regulation are exhaustive, unless the
insurer has voluntarily chosen to provide a non-mandated
benefit for a physical condition.

   However, our original opinion did not adopt this interpreta-
tion of the Parity Act’s text, given our reading of the Parity
Act’s implementing regulation as referring to the Parity Act
itself, rather than creating a ceiling for benefits to be pro-
vided. Specifically, we stated:

    Blue Shield inserted the bracketed phrase “[Knox–
    Keene]” in its quotation of the regulation. Based on
    its assumption that the regulation refers to the Knox
    –Keene Act, Blue Shield argues that coverage under
    the Parity Act is intended to parallel coverage under
    the Knox–Keene Act. We believe that Blue Shield
    misreads the regulation. In our view, the “Act” to
    which the regulation refers is the Parity Act. . . .
    Without Blue Shield’s alteration, nothing in the text
    of the statute or the regulation suggests that the
    scope of the Parity Act is equivalent to the scope of
    the Knox–Keene Act.

Harlick, 656 F.3d at 845.

  We now unanimously agree with Blue Shield that “Knox–
Keene” in fact does appropriately belong within the brackets.
We cannot avoid this interpretation, because California’s
Administrative Code requires that we interpret the word “Act”
6216            HARLICK v. BLUE SHIELD OF CALIFORNIA
as a reference to the Knox–Keene Act.1 Cal. Code Regs. tit.
28, § 1400.45(a). Given this change, there is support for the
interpretation of the Parity Act where “the scope of the Parity
Act is equivalent to the scope of the Knox–Keene Act.” Har-
lick, 656 F.3d at 845. Accordingly, this change in interpreta-
tion should also change our conclusion as to what benefits
insurers are required to provide under the Parity Act.

   Nevertheless, the majority rejects this obvious interpreta-
tion of the statutory text based on its interpretation of “includ-
ing but not limited to” language in the implementation
regulation, which reads as follows:

      The mental health services required for the diagno-
      sis, and treatment of conditions set forth in Health
      and Safety Code section 1374.72 [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 within the
      meaning of Health and Safety Code sections 1345(b)
      and 1367(i), and section 1300.67 of Title 28.
  1
    See also Arce v. Kaiser Found. Health Plan, Inc., 104 Cal. Rptr. 3d
545, 564 (2010) (inserting ‘Knox–Keene’ in brackets when quoting
§ 1300.74.72(a)). Though this definition section was enacted before the
Parity Act’s implementing regulation, California law follows “a presump-
tion that the Legislature is aware of an administrative construction of a
statute,” and this presumption “should be applied if the agency’s interpre-
tation of the statutory provisions is of such longstanding duration that the
Legislature may be presumed to know of it.” Redevelopment Agency of the
City of Long Beach v. Cnty. of L.A., 89 Cal. Rptr. 2d 10, 17 n.5 (1999)
(quoting Moore v. Cal., 831 P.2d 798, 809 (Cal. 1992)). An “administra-
tive construction of a statute over many years, particularly when it origi-
nated with those charged with putting the statutory machinery into effect
and enforcing it, is entitled to great weight and will be followed unless
clearly erroneous.” Robinson v. Fair Emp’t & Hous. Comm’n, 825 P.2d
767, 785 (Cal. 1987) (internal quotation marks omitted); see also Misasi
v. Jacobsen, 359 P.2d 282, 284 (Cal. 1961) (“[C]ourts will generally not
depart from such an [administrative] interpretation unless it is clearly erro-
neous.”).
             HARLICK v. BLUE SHIELD OF CALIFORNIA            6217
Cal. Code Regs. tit. 28, § 1300.74.72(a) (emphasis added).
Based on this language alone, the majority argues that the
“regulation suggest[s] that the list of benefits in subsection (b)
of the Act, as well as the ‘basic health care services’ specified
in the regulation, are illustrative rather than exhaustive.”
Revised Maj. Op. 6196-97. However, this reading of the regu-
lation ignores the text surrounding the “including, but not lim-
ited to” language and also ignores fundamental canons of
statutory interpretation.

   The text of the Parity Act’s implementing regulation sug-
gests that the first portion of subsection (a) (“services required
. . . shall include, when medically necessary, all health care
services”) is being modified by the second portion of subsec-
tion (a) (“required under the [Knox–Keene] Act . . . .”). Thus,
the second portion of the text limits the scope of the “health
care services” that must be provided to the types of benefits
provided under the Knox–Keene Act. It is undisputed that the
Knox–Keene Act does not require all medically necessary
treatment for physical illnesses. See Kaiser Fdtn. Health Plan,
Inc. v. Zingale, 121 Cal. Rptr. 2d 741, 745 (2002) (“If the
Legislature had intended to require every health care service
plan that offers a prescription drug benefit to cover all medi-
cally necessary prescription drugs or to allow the Department
to impose that requirement, it would have been simple for the
Legislature to say so.”). 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 bene-
fits the Knox–Keene Act provides when they are medically
necessary for mental health.

   The majority’s current interpretation of the regulation reads
out the modifying text: that the benefits must be provided
when “required under the [Knox –Keene] Act . . . .” Such a
reading contradicts California’s longstanding rule against
interpreting portions of statutory or regulatory text to be
superfluous. See Wells v. One2One Learning Found., 141
6218         HARLICK v. BLUE SHIELD OF CALIFORNIA
P.3d 225, 248 (Cal. 2006) (“[I]nterpretations which render
any part of a statute superfluous are to be avoided.”).

   The “including, but not limited to,” language (on which the
majority relies) does not contradict this interpretation of the
Parity Act. 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 . . . .” Wainwright v. Superior Court, 100 Cal. Rptr. 2d
749, 752-53 (2000); see also People v. Giordano, 170 P.3d
623, 634 (Cal. 2007) (“Although the phrase ‘including, but
not limited to’ is a phrase of enlargement, the use of this
phrase does not conclusively demonstrate that the Legislature
intended a category to be without limits.” (internal quotation
marks omitted)). Thus, the context surrounding the “includ-
ing, but not limited to” phrase cannot be ignored when deter-
mining the extent of the “enlarging” effect this phrase has on
benefits that § 1300.74.72(a) requires insurance companies to
provide.

   In multiple cases, the California Supreme Court has
explained that the “including, but not limited to” phrase must
be given a narrow interpretation when it precedes a list of
illustrative items that have a similar characteristic. For exam-
ple, in People v. Arias, 195 P.3d 103, 109-10 (Cal. 2008), the
California Supreme Court applied the ejusdem generis cannon
of statutory interpretation (meaning “of the same kind”), to
reject a broad interpretation of the “including, but not limited
to” proviso. The California Supreme Court explained that
when “specific words follow general words in a statute or vice
versa . . . the general term or category is restricted to those
things that are similar to those which are enumerated specifi-
cally.” Id. at 109 (internal quotation marks omitted). The
court explained that, to interpret the “including, but not lim-
ited to” phrase to allow items beyond that type, would “render
             HARLICK v. BLUE SHIELD OF CALIFORNIA         6219
nugatory the qualifiers that the Legislature purposefully
included in that example.” Id. at 110.

   California has other similar cases utilizing the ejusdem
generis cannon to interpret an “including, but not limited to”
statutory phrase in a similar limited fashion. See, e.g., Kraus
v. Trinity Mgmt. Servs., Inc., 999 P.2d 718, 734 (Cal. 2000)
(limiting the “including, but not limited to” phrase when the
legislature “offer[s] as examples peculiar things or classes of
things”), superseded on other grounds by statute as recog-
nized in Arias v. Superior Court, 209 P.3d 923 (Cal. 2009);
Peralta Comty. Coll. Dist. v. Fair Emp’t & Hous. Comm’n,
801 P.2d 357, 360, 363, 367 (Cal. 1990) (a statute authorizing
commission to take “such action” as it believes will effectuate
the purposes of the Fair Employment and Housing Act, “in-
cluding, but not limited to, hiring, reinstatement or upgrading
of employees, with or without back pay, and restoration to
membership in any respondent labor organization,” does not
authorize commission to award compensatory damages,
because that was not “of the same general nature or class as
those enumerated”); Dyna-Med, Inc. v. Fair Emp’t & Hous.
Comm’n, 743 P.2d 1323, 1327, 1329 (Cal. 1987) (holding that
the statute did not extend to cover remedies that were “differ-
ent in kind from the enumerated remedies,” because “[a] more
reasonable reading of the phrase ‘including, but not limited
to,’ . . . permitting only additional corrective remedies com-
ports with the statutory construction doctrines of ejusdem
generis, expressio unius est exclusio alterius and noscitur a
sociis.”).

   The Parity Act’s implementing regulation contains a simi-
lar situation, where the “including, but not limited to” phrase
is followed by a reference to a general term (“basic health
care services within the meaning of”) and then a list of three
statutory or regulatory provisions enumerating health ser-
vices. See Cal. Code Regs. tit. 28, § 1300.74.72(a) (emphasis
added). The first two provisions (California Health and Safety
Code §§ 1345(b) and 1367(i)) are from the Knox–Keene Act
6220         HARLICK v. BLUE SHIELD OF CALIFORNIA
itself, and the second provision (§ 1300.67 of Title 28 of the
California Code of Regulations) is a regulation promulgated
under the authority of the Knox–Keene Act. Thus, following
California’s use of the ejusdem generis cannon of statutory
construction, the illustrative health care services listed are ser-
vices mandated by the Knox–Keene Act, which suggests that
other non-listed services would similarly be of the type
required under the Knox–Keene Act. A narrow interpretation
of the implementing regulation comporting with ejusdem
generis mandates only one conclusion: any other services
offered beyond what the Knox–Keene Act requires should be
interpreted narrowly, and would likely only include those ser-
vices specifically mandated by the Parity Act or in parity with
physical health benefits that have voluntarily been provided
by the insurer.

   California case law does not support the majority’s textual
interpretation. The original and revised opinion rely on Arce,
104 Cal. Rptr. 3d 545 (2010), arguing that although Arce did
not explicitly touch on this issue, “the court’s analysis appears
to assume” that the Act requires “all medically necessary
treatment . . . .” Revised Maj. Op. 6203-04. While this is not
an unreasonable interpretation of Arce, the Arce holding also
appears to be equally consistent with the interpretation of the
Parity Act which is mandated by its language (as explained
above).

   The issue in Arce was whether the insurance company had
engaged in unlawful conduct by “denying coverage for the
diagnosis and treatment of autism spectrum disorders under
the same terms and conditions applied to other medical condi-
tions.” Arce, 104 Cal. Rptr. 3d at 565 (emphasis added). The
insurance company was arguing that a violation of the Parity
Act could only occur if it was demonstrated that the “therapies
at issue were medically necessary for the putative class . . . .”
Id. But the court held that a violation could also be shown if
the insurance company “categorically denie[d] coverage for
mental health care services that may, in some circumstances,
               HARLICK v. BLUE SHIELD OF CALIFORNIA        6221
be medically necessary . . . .” Id. However, this analysis was
focused on a denial of mental health services that led to an
unequal provision of coverage compared to physical illnesses,
and thus it says nothing of requiring all medically necessary
benefits regardless of the physical benefits provided.

   Finally, under California law, when a statute requiring the
provision of insurance benefits is ambiguous, the statute is not
necessarily construed in favor of the insured. Rather, “the
statute must be construed to implement the intent of the Leg-
islature and should not be construed strictly against the
insurer (unlike ambiguous or uncertain policy language).”
Prudential–LMI Commercial Ins. v. Superior Court, 789 P.2d
1230, 1236 (1990) (citing Interinsurance Exch. v. Marquez,
172 Cal. Rptr. 263, 264 (Cal. 1981)); see also Ichthys Inc. v.
Guarantee Ins. Co., 57 Cal. Rptr. 734, 737 (1967)); Zaragoza
v. Ibarra, 95 Cal. Rptr. 3d 264, 270 (2009).

   The purpose of the Parity Act supports an interpretation of
the statute requiring only that mental health coverage pro-
vided be linked to the physical health coverage provided
under the Knox–Keene Act. As discussed above, the Parity
Act was enacted in 1999 to address the perceived problem
that private health insurance policies provided coverage for
mental illness at levels far below coverage for other physical
illnesses. See 1999 Cal. Stat. 3701. This problem would not
be rectified by requiring insurance policies to provide more
mental health coverage than physical health coverage. Fur-
ther, the word “parity” itself means “[e]quality, as in amount,
status, or value.” The American Heritage College Dictionary
993 (3d ed. 1997). Therefore, the rationale (and even the
name of the Parity Act) indicates that the legislature’s goal
was to ensure parity in the scope of coverage for services that
plans must offer for physical and mental illness.

         II.    The Conflicting Legislative History

  Because the Parity Act’s statutory and regulatory text no
longer supports the majority’s interpretation, the majority now
6222         HARLICK v. BLUE SHIELD OF CALIFORNIA
relies primarily on legislative history to justify its holding.
But legislative history, often an elusive tool of interpretation,
is particularly elusive here. Thus, relying on legislative his-
tory here results in the proverbial situation where the majority
is “looking over a crowd and picking out its friends.” People
v. Seneca Ins. Co., 62 P.3d 81, 86 (Cal. 2003) (quoting Patri-
cia M. Wald, Some Observations on the Use of Legislative
History in the 1981 Supreme Court Term, 68 Iowa L. Rev.
195, 214 (1983)).

   For example, the majority opinion focuses on the various
positions the California Department of Managed Health Care
(“DMHC”) has taken with regard to the implementation regu-
lation. Revised Maj. Op. 6204-06. But there are multiple ways
to interpret the inconsistent stances of the DMHC. The
revised majority opinion explains that “[d]uring the notice-
and-comment process leading up to the promulgation of
§ 1300.74.72, Blue Shield made the same argument about the
mandated coverage of the Parity Act that it now makes to us.
The DMHC unambiguously rejected Blue Shield’s argu-
ment.” Revised Maj. Op. 6200. However, it is far from clear
that the DMHC’s response rejected Blue Shield’s argument
for the same reason the majority does.

   The record shows that, when Blue Shield expressed con-
cern that the regulation might be read to require coverage for
all medically necessary care, the DMHC rejected the com-
ment. However, the DMHC rejected the comment, not
because it disagreed with Blue Shield, but because the DMHC
viewed the regulation as already clearly stating what Blue
Shield was requesting. “Given that the statute requires parity
in coverage, the commentator’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 care provided by the plan.” DMHC Mental Health Par-
              HARLICK v. BLUE SHIELD OF CALIFORNIA             6223
ity, Responses to Comments, 1st Comment Period, 8/16 –
9/30/2002, at 1 (emphasis added). Notably, the DMHC’s
response was not that mental health coverage must be pro-
vided regardless of whether it was medically necessary or on
parity with other health care provided by the plan. Thus, med-
ical necessity was not demonstrated as an independent basis
for receiving coverage, and the DMHC viewed Blue Shield’s
concern as “without merit.”

   Furthermore, when DMHC responded to another commen-
tator by stating that “it is sufficient to state that the plans must
provide all medically necessary services,” DMHC was
responding to a commentator’s suggestion that “a list of ser-
vices specific to mental health” be developed so that all ser-
vices needed “to provide full parity coverage” would be
available. Id. at 2 (emphasis added). The commentator was
arguably asking for a list of mental health benefits to be pro-
vided in parity, or equal measure, to physical health coverage.
The commentator was clearly not asking for coverage of all
medically necessary mental health benefits without limit.

   In addition, the majority opinion dismisses the DMHC’s
“Mental Health Parity in California Survey” (the “Survey”),2
because the “study was not—and was not designed to be—an
enforcement proceeding.” Revised Maj. Op. 6207. While that
is true, this does not necessarily preclude the Survey from
providing support for Blue Shield’s argument.

   The Survey was implemented as part of the DMHC’s
authority to regulate and monitor managed health plans in
response to questions by legislators and consumers about
“whether parity between medical and mental health care had
been achieved.” The Survey results “did not identify dispari-
ties between the contractual terms and conditions used for
medical versus mental health coverage, as disclosed in the
Evidence of Coverage (“EOC”). Further, the Survey found no
  2
   The Survey began in 2004 and provided results in 2005.
6224           HARLICK v. BLUE SHIELD OF CALIFORNIA
pattern of plans denying services for mental health conditions
that would be covered for other medical conditions.” Based
on its findings, the DMHC immediately required the plans to
take corrective action on several issues—none of which
related to the types of services provided or to residential care.
Moreover, the Survey discussed the plans’ use of residential
care at some length. It noted that often only part of the resi-
dential care is covered; that “plans offer a choice of benefit
packages both with and without RTC benefits”; that of the
seven insurers, four plans offered RTC coverage as an
optional benefit, and only one covered it on equal terms with
skilled nursing facilities.

   The Survey specifically considered the EOC documents
from the health plans and found no violation of the Parity Act.
The Survey made this finding, despite Blue Shield’s plan3
which allowed treatment in a SNF, but expressly excluded
residential care.

   The majority opinion also diminishes the importance of
DMHC’s response to a letter written by Robin Watson (Har-
lick’s mother), by categorizing it as a request for an Indepen-
dent Medical Review (“IMR”). Revised Maj. Op. 6207. In
this letter, DMHC Senior Counsel Andrew George explained
that “Blue Shield is not obligated to provide coverage for
[Harlick’s] treatment.” However, neither Watson’s letter nor
the letters from the DMHC indicate that Watson’s letter was
either a request for an IMR (it never mentioned medical
necessity) or was treated as such. Even if an IMR is limited
to considerations of medical necessity, that limitation may be
inapplicable. See Cal. Health & Safety Code § 1374.30(b).
Instead, the DMHC help center referred to it as a complaint.
Aside from an IMR, “[a]ll other enrollee grievances, includ-
ing grievances involving coverage decisions, remain eligible
for review by the department pursuant to subdivision (b) of
  3
    Harlick has not challenged Blue Shield’s assertion that it was included
in the Survey, even though the Survey does not list the plans considered.
               HARLICK v. BLUE SHIELD OF CALIFORNIA                  6225
Section 1368.” Cal. Health & Safety Code § 1374.30(d)(1).
According to the DMHC’s website, even a request
for an IMR, if inappropriate, will be handled as a grievance.
Department of Managed Health Care, “Questions and
Answers about IMR” http://www.dmhc.ca.gov/dmhc_
consumer/pc/pc_imrqa.aspx (last visited May 3, 2012)
(explaining that if a problem does not qualify as an IMR, “the
Help Center will review your case through its regular com-
plaint process and send you a written decision within 30
days”).

   Section 1368 provides that, after an enrollee has completed
the plan’s grievance process, she may “submit the grievance
to the department for review.” Cal. Health & Safety Code
§ 1368(b)(1)(A). As here, the department “shall review the
written documents submitted with the subscriber’s or the
enrollee’s request for review” and “may ask for additional
information.” Id. § 1368(b)(3). The department will then
“send a written notice of the final disposition of the grievance,
and the reasons therefor, to the subscriber,” which will
include “[a] summary of its findings and the reasons why the
department found the plan to be, or not to be, in compliance
with any applicable laws, regulations, or orders of the direc-
tor.” Id. § 1368(b)(5).

   It is true that George’s response to Watson’s complaint did
not explicitly address whether Blue Shield’s denial complied
with the Parity Act. However, Watson’s letter to the DMHC
specifically alleged that “Jeanene is protected by the CA Par-
ity Law and the insurance company is not paying the claims.”
After reviewing the information submitted, the DMHC con-
cluded that “Blue Shield has complied with its responsibilities
under applicable health plan law regarding your request.” It
did not limit this conclusion to any particular law, and it is
likely that George considered the Parity Act in his analysis.
George was also one of the contributors to the Survey.4
  4
   As a contributor, it is not likely that George was either (1) unfamiliar
with the parity law that Watson challenged or (2) unfamiliar with the Sur-
6226            HARLICK v. BLUE SHIELD OF CALIFORNIA
                           III.   Conclusion

   As discussed above, the Knox–Keene Act does not require
all medically necessary treatment for physical illnesses. See
Kaiser, 121 Cal. Rptr. 2d at 745. Thus, to keep in parity with
those benefits, it makes sense that the Parity Act would also
not offer them. Therefore, I must dissent because (1) the statu-
tory and regulatory text most clearly support a statutory inter-
pretation linking the scope of coverage provided under the
Parity Act to the Knox–Keene Act, and (2) the statute’s pur-
pose and legislative history provide equal (if not more) sup-
port to this interpretation, rather than the majority’s
interpretation.




vey’s earlier conclusion that excluding residential treatment did not violate
the parity law. His conclusion that Blue Shield complied with the law thus
may indicate support for Blue Shield’s interpretation.
