Sep 03, 2010
General
Judge Acker Speaks His Mind About ERISA
Judge Acker Speaks His Mind About ERISAERISA Bonds
ERISA bonding requirements are complex. Here's some information about it.Delayed Claim for Prosthetic Leg
ERISA, delayed payment of insurance claim, prosthetic leg, Horizon Blue Cross Blue ShieldNinth Circuit Upholds Ban on Discretionary Authority Clauses
Yesterday the U.S. Court of Appeals for the Ninth Circuit issued Standard Ins. Co. v. Morrison, upholding the Montana State Insurance Commissioner's ban on discretionary authority clauses in that state. I've posted a copy of Morrison in the website library. I blogged about the underlying district court decision in Morrison here.The opinion analyzes how the Commissioner's ban qualifies under both prongs of ERISA's savings clause test outlined by the Supreme Court in Kentucky Ass'n of Health Plans v. Miller, 538 U.S. 329 (2003). It concurs with the conclusion of the Sixth Circuit in American Council of Life Insurers v. Ross, 558 F.3d 600 (6th Cir. 2009), where that court upheld a Michigan state ban on discretionary authority clauses. In Morrison the Ninth Circuit spends time discussing and rejecting the insurer's argument that to allow states to ban discretionary authority clauses sets up an alternative remedy that conflicts with ERISA's exclusive scheme for redressing improper denial of benefits. The Ninth Circuit rightly swats that away. First, banning discretionary authority clause grants no additional remedy to insureds. And second, prior Supreme Court precedent makes clear that plan sponsors and administrators are not automatically entitled to deferential review of their decisions under ERISA. They dearly want that privilege. But the language of the statute provides no reason to think Congress intended that ERISA plan sponsors and administrators are automatically granted such a significant advantage in dealing with plan participants and beneficiaries.
I don't think there is much questionable analysis in either Morrison or ACLI v. Ross. I expect that few, if any, courts in the future will find that state bans of discretionary authority clauses are preempted by ERISA.
The L.A. Times Editorializes
Thanks to the L.A. Times for its support of amending ERISA to provide meaningful remedies when insurers act in bad faith in denying claims. When there is no accountability for behaving badly in a competitive environment, you guarantee that bad behavior will increase.Will Healthcare Reform Make Insurers More Accountable?
Short answer: no. At least, nothing in the bills currently being debated in Congress will do anything to provide remedies that provide for more health insurance accountability when they wrongfully deny claims or rescind coverage. In fact, the pressure on insurers to become more aggressive in dealing with claims may increase as a result of the proposed legislation. Lisa Girion has the story here in the today's L.A. Times.I Fear This Is Right
Sadly, I think there is a lot of truth to the title of this op-ed piece, "health reform is corporate welfare." I especially like the "cherry lemon socialism" concept.A non-frivolous argument can be made for the idea that profit making corporations should be allowed to do everything within their legal power to try and shift losses to taxpayers and keep profits for themselves. One can argue that avoiding accountability for their losses is part of the market competition. If they can do it better than their competitor, they may survive while their competitor may not. This is the kind of clear eyed realism that so many conservatives are so proud to embrace. You'll find these hardy souls are often quick to ridicule liberals who try to avoid cold-blooded, survival of the fittest, thinking. However, especially for those who adhere to pure market thinking, the idea that taxpayers should be made to subsidize the losers and the winners should be allowed to keep their profits is most offensive.
I hope Congress has the cajones to stand up to the health insurance industry and put in place some mechanisms to provide for meaningful corporate accountability as well as effective healthcare reform.
ESL Description of ERISA
Sometimes things get lost in translation. But other times, a translation can give new and wonderful meaning to something we are familiar with and take for granted. For an interesting English-as-second-language description of self funded plans and ERISA, take a look at this summary. My personal favorite is that the Department of Labor "tranquilizes" self funded plans. If only.h/t Richard Johnston
A Component of Healthcare Reform: Providing Meaningful ERISA Remedies
The discussions about national healthcare reform contain very little comment about the near complete legal immunity of health insurers and employer sponsored plans. As I've discussed before, there is relatively no accountability when ERISA plan fiduciaries wrongfully deny benefits or violate the terms of ERISA. Tony Sebok, Professor of Law at the Cardozo Law School has some comments today on that issue. He promises to post additional thoughts as the week goes on.
For more information about the problems ERISA creates, take a look at a new blog from a friend of mine, Richard Johnston. Good stuff.
Who's Likely to Do Well With Healthcare Reform?
Earlier this week this L.A. Times story gives us an idea about the answer to this question. Many months ago America's Health Insurance Plans, the lobbying group for health insurers and other payers of health benefits, decided they needed to get in front of the forthcoming legislative parade about how we deliver and finance healthcare in this country. Smart move AHIP. Many think healthcare payers will end up with a "bonanza" and a "financial windfalll" at the end of the Congressional process. Any legislation that passes will likely provide universal coverage which will add tens of millions of people to insurance company customer lists, taxpayer subsidies to assist the poor in paying premiums, and more lenient requirements for payers on the amount of insurance they must provide per premium dollar.Insurers aren't out of the woods yet. If the public option ends up in a final blll that passes Congress, there could be some rain on the insurer's parade.
UPDATE: Kristof's column today is a must read.
Final Medical Malpractice Reform Post (Promise!)
Comments whether restricting medical malpractice claims should be a part of our national healthcare reform debate have heated up in the last couple of weeks. I commented on the issue here and here. Andrew Sullivan's blog has also been discussing the issue. This post contains some pretty definitive information to show that medical malpractice reform doesn't hold much promise for curing what ails us.More on Krauthammer's Healthcare Reform Proposal
Steven Perlstein, business columnist for the Washington Post, comments on Charles Krauthammer's healthcare reform proposal here.Medical Malpractice Reform Is The Answer?
Charles Krauthammer's Washington Post column from a couple of days ago purports to wield the sword that will cut the Gordian Knot that is our healthcare conundrum. The second part of his solution, eliminating the income tax break provided to employers and employees for medical benefits provided through work, isn't a bad idea but it is a far cry from solving the problems of our current system. But it's the first part of his solution that got my attention.Krauthammer claims that reforming medical malpractice will eliminate the supposed scourge of defensive medicine that is plaguing our country. Krauthammer, who is a physician himself, wants to do away with our current, fault based medical malpractice system and substitute a new "social pool" that will be used to compensate victims of medical malpractice. A panel of medical experts will be substituted for a jury as the deciders of whether medical malpractice has occurred. Krauthammer asserts this will eliminate the "lawsuit lottery" that he claims trial lawyers make their living playing. They will just be cut right out of the picture. To avoid the moral hazard that would accompany eliminating negative consequences for medical malpractice he proposes that negligent physicians will have to forfeit their licences.
I have questions. What about the Seventh Amendment to the Bill of Rights? You know, the one that says that every person with a civil suit with an amount in question over $20 gets the right to trial by jury. Do we just sort of set that aside? In fact, it's really not a close call that of the original items in the Bill of Rights, the Seventh Amendment right to trial by jury has been, by far, the most eroded and bypassed. I would expect a conservative, strict Constitutional constructionist like Krauthammer to at least mention that. In any event, that seems to me, if nothing else, a formidable political, legal and practical barrier to his proposal.
Next, is Dr. Krauthammer aware that the Institute of Medicine has stated medical malpractice killls more people per year in this country than car accidents? No? That's not to mention how many people are seriously injured through medical malpractice. In fact, very few of those individuals or their families ever recover anything by way of compensation in medical malpractice claims. How do we deal with the greatly increased costs associated with compensating for injuries and death of all people injured or killed due to medical malpractice? Is a "relatively small tax on health insurance premiums," as Dr. Krauthammer says, really going to cover that expense? I doubt it. Does anyone really even know how much such a compensation system would cost? Krauthammer makes no attempt to provide an answer to that. He just assumes it won't be much but unless you grossly undercompensate medical malpractice victims, I'm confident he's wrong.
The best way to deal with medical malpractice is to take meaningful steps to reduce its occurrence. That means training physicians more effectively.
Soliciting the Breach of ERISA's Fiduciary Duties
A few days ago I received a brochure from the American Conference Institute advertising their annual ERISA Litigation seminar. In the past ACI has put on a good (albeit expensive) ERISA seminar each year. I’ve presented at it in the past. The difference in this year’s format is that ACI is presenting the seminar solely from a defense perspective. It promotes the program by boasting a faculty that includes 28 in-house counsel from various insurers and large corporations along with 21 U.S. District Court judges from across the country.
More troubling, however, are some of the topics the presenters will address. One of them is “using the claims review process to set up, control and strengthen the defense.” Another topic to be addressed is “anticipating claims when making the decision and preparing to defend it before the decision is made.” You can take a look at the brochure yourself. I’ve placed a copy of it in the website library here.
Now maybe I’m being just a little sensitive in how I title this post but I don’t think so. You see, the overriding concern of ERISA is that fiduciaries will be held to strict fiduciary standards. The statute defines ERISA in broad terms. Any person or entity that is charged with, or actually exercises, any authority, management or control over an ERISA plan or its assets is a fiduciary. 29 U.S.C. Sec. 1002(21). It doesn’t matter whether the person is designated as a fiduciary under the plan documents or they simply act in a fiduciary capacity. It doesn’t matter whether they are aware of their fiduciary status or intend to act as a fiduciary.
In addition, the statute expressly states that ERISA fiduciaries must act solely in the interest of the ERISA plan’s participants and beneficiaries and for the exclusive purpose of providing them benefits. 29 U.S.C. §1104(a)(1)(A). Various cases provide more information about the nature of these fiduciary duties. One court referred to ERISA’s fiduciary duty standards as “the highest known to the law." Donovan v. Bierwirth, 680 F.2d 263, 272, n. 8 (2nd Cir. 1982). The Supreme Court referred to ERISA's fiduciary duty standards just last year as requiring “higher-than-marketplace” standards of conduct. Metropolitan Life v. Glenn, 128 S.Ct. 2343, 2350 (2008). This echoes the language of Justice Benjamin Cardozo many years ago when he described fiduciary duties in this way:
Many forms of conduct permissible in a workaday world for those acting at arms length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the marketplace. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior.
Meinhard v. Salmon, 164 N.E. 545 (N.Y. 1928). One of the most critical points at which these fiduciary duties apply is when insurers and plan administrators are evaluating whether to pay or deny a claim.
What does it say about how seriously ACI and its presenters take ERISA’s fiduciary duty standards when they teach plan fiduciaries how they can “use the claims review process to set up, control and strengthen” defense of that claim in litigation? When ACI advises lawyers and corporate officers about how they can “anticipate claims when making the decision and prepare to defend them before the decision is made,” it is doing nothing less than encouraging the breach of ERISA’s fiduciary duties.
The ACI marketing brochure is testimony to what a sham ERISA’s fiduciary protections of participants and beneficiaries have become.
A Summary of the Senate's Healthcare Reform Bill
You can find here a summary of the healthcare reform bill passed out of the Senate Health, Education, Labor and Pensions Committee earlier this week. Thanks to Rob Liebross for the link.
Don Levit will be interested in the references to MEWAs near the end of the report.
The Problem With Health Insurers
Wendell Potter pretty much identifies a few of them.Healthcare Reform
The New York Times editorial from yesterday provides one of the most concise summaries I've seen for the reasons we need the public option as part of whatever emerges from our our healthcare reform debate. Take a look.Insurance companies aren't inherently evil. They are important components in the way we deliver and finance medicine. But, left to their own devices, there are many reasons and ways for them to avoid providing universal coverage. That's the simple truth and there's no getting around it. The public option seems to me to be the best way of dealing with that reality.
Does a De Novo Standard of Review Restrict A Trial Court's Evaluation Of An ERISA Benefit Claim?
According to one U.S. Circuit Court of Appeal, the answer is a resounding "no." In an important decision today from the Seventh Circuit, Judge Frank Easterbrook writes for a unanimous panel in Krolnik v. The Prudential Ins. Co. of America. The trial court ruled that Paul Krolnik was prohibited from introducing affidavits in litigation to support his disability claim. Krolnik also attempted to conduct discovery but the trial court likewise cut him off at the pass. The trial court ruled that ERISA benefit denial cases, even those conducted under a de novo standard of review, simply involve a review of the insurer's actions rather than consideration of all the facts and arguments presented by both sides in litigation. After the court granted Prudential summary judgment, Krolnik appealed.
UPDATE: I've place Krolnik in the website library.
Judge Easterbrook is known for his concise, direct and unequivocal writing style and this opinion is no exception. The reference in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), to "de novo review" is misleading: "[t]he law Latin could be replace by an English word, such as 'independent.' And the word 'review' simply has to go. For what Firestone requires is not 'review' of any kind; it is an independent decision rather than 'review' that Firestone contemplates."
Comparing the dispute before the court to non-ERISA insurance litigation, the opinion goes on to state, "[a] judge would not dream of forbidding the parties to take discovery, let alone of rejecting affidavits that did not depend on discovery. Evidence is essential if the court is to fulfill its fact-finding function. Just so in ERISA litigation." Where the evidence is conflicting, the court, rather than an insurer or other ERISA plan administrator, is obligated to weigh the evidence and make a final decision about whether the claimant is entitled to benefits.
Summing up, Judge Easterbrook takes pains to be clear:
"All in all, it would be best for judges and lawyers to stop thinking about 'de novo review'--with the implication that the judge is 'reviewing' someone else's action--and start thinking about independent decision, which is what Firestone requires."
This is the first Circuit court I'm aware of to explicitly state that there are no restrictions or limitations on the scope of review a trial court carries out when it undertakes de novo review of an ERISA benefit denial case. There is support for the argument not just in Firestone v. Bruch, as the opinion references, but also in the Court's statements last year in MetLife v. Glenn, 128 S.Ct. 2343 (2008). In that case the Supreme Court held that there are no special evidentiary or procedural rules trial courts are bound to follow in evaluating how an insurer's inherent conflict of interest affects a court's review.
As de novo review becomes more common in ERISA benefit denial cases (states are increasingly banning discretionary authority clauses from insurance policies), Krolnik has the potential to significantly shift the basic framework lawyers and judges have taken for granted in litigating ERISA benefit denial cases. The effect of greater discovery and opportunity to develop and present information in litigation will do two things. It will result in better, more fully informed and accurate decision making by the federal judiciary. And it will make litigating ERISA benefit denial cases more costly in time and money for the parties.
Reality For Health Insurers
Yesterday's Washington Post article about Wendell Potter's testimony before the Senate Commerce Committee should come as no surprise to anyone who's dealt with health insurers. The former Cigna executive's message? Don't trust insurers. I don't think this is the bombshell that a lot of others seem to think it is. The idea that we should blindly trust any business is pretty naive. They are created to make a profit and short of that cease to exist. The problem with all insurers, however, is that consumers are at their mercy to a much greater degree than for most business transactions. And insurers know it. Indeed, they play on our vulnerabilties in their ad campaigns. Just think of their marketing: "like a good neighbor, State Farm is there." "You're in good hands with Allstate." They want us to know that they are there to protect us and we can trust them . Within ERISA the potential for abuse in the insurer/insured relationship is recognized and dealt with through that statute's fiduciary duty standards. A good argument can be made that there is nothing wrong with ERISA's language, only with the federal judiciary's refusal to enforce in a meaningful way those fiduciary standards.
It's nice to see an industry insider reminding Congress that we should be very wary of removing meaningful checks on insurers or gutting remedies for their misconduct. We need to provide in our healthcare reforms effective ways to ensure that insurers are held accountable when they overreach.
The Many Faces of Healthcare Reform
Drew Altman, the President and CEO of the Kaiser Family Foundation, has some insightful comments about the aspect of the healthcare reform debate he believes is being neglected: insurance market reforms. He makes a number of good points. One of the surprising things I learned is the fact that across the political spectrum there is majority support for eliminating the ability of insurers to underwrite applicants for health insurance. People support the idea of requiring that health insurers be required to take all risks even if it may mean the consumer pays more in premium. The willingness of folks to accept that potential sacrifice is key to getting universal coverage off the ground in the negotiations.Insurance CEOs Shoot Themselves In The Foot
Yesterday's hearing on health insurance rescissions before the House Subcommittee on Oversight and Investigations provided yet another example of something insurers seem intent on proving beyond a shadow of a doubt: their CEOs are their own worst enemies. The chief executives of three of the largest health insurers in the country, UnitedHealth Group, WellPoint and Assurant, were asked directly in the hearing if they were willing to limit their rescission of insurance policies to situations where the applicant intended to defraud the insurer. Each refused to agree to that restriction.There's not too much dispute about the way in which health insurers have abused rescission across the country. I've litigated several of these cases successfully for insureds. The insurer's overreaching is simple: when a policy has been in place for less than a couple of years and the insured has an injury or illness that leads to significant claims, the insurer has software programs that flag the claims. The insurer than gathers medical records and goes back over the insured's original application looking for any omissions or discrepancies between the application and the insured's medical history. If any are found, the insurer retroactively cancels, rescinds, the policy and saves itself a bundle. The insureds don't fare so well. When they are most financially vulnerable they find that the policy they've been relying on to take care of them, on which they've faithfully paid premiums, isn't there after all.
The L.A. Times article notes that the CEO's perspective on rescission creates doubt about whether insurer overreaching can be held in check without providing consumers an option to buy their health coverage through a government sponsored plan rather than a for profit insurance company. As I've listened to the debate about reforming how we deliver and finance healthcare in our country, it seems that insurers present two contradictory arguments. On the one hand, they say government provided medical coverage would degrade the quality of the nation's healthcare and create dissatisfied consumers. On the other hand, government provided medical coverage would lead to the demise of for profit insurance by putting them at tremendous competitive disadvantage. So make up your mind insurance industry. Is the public option better or worse in effectively delivering high quality medical care?
For more on insurance CEOs as their own worst enemies, consider my porcine friend William McGuire, former chief executive of UnitedHealth Group.
