Illusory Medical Coverage
Recently I had a client who received medical treatment over an extended period of time, on both an in-patient and out-patient basis, for a chronic condition. She ran up a total bill of about $144,000, a good portion of which was the expense of large quantities of prescription drugs necessary to treat her life-threatening illness. She was grateful for the fact that she had, as she thought, good medical coverage through her employer, an insurance company. Her providers submitted the bills to her ERISA plan for coverage. The plan denied over $36,000 of the bills claiming that they exceeded the insurer’s usual, customary and reasonable guidelines.
It is very common for insurers and ERISA plans to exclude payment of medical expenses that exceed usual, customary and reasonable charges. What made this plan different was that the language of the plan documents was very broad in describing how the plan could limit payment under this exclusion. That language stated that, with regard to prescription drugs, the plan would pay only an amount that, in its sole and complete good faith discretion, was “based on the actual cost to the provider” of the prescription drugs. Using this language, the plan paid my client’s prescription drug charges at the average wholesale price for those medications. As you can imagine, the actual charges for the prescription drugs were substantially higher than their average wholesale price. The cost to the medical providers for those prescription drugs may have been higher than the average wholesale price. But the insurer/plan sponsor didn’t care about that. It included language in its plan documents limiting its exposure and it was enforcing that language.
Another part of the usual, customary and reasonable exclusion language allowed the plan to, in its sole discretion, if it felt the charges were excessive, use “any reasonable methodology, including Medicare diagnostic related group reimbursement rates” to determine how much it would pay for the treatment my client received. Those DRG reimbursement rates are used by Medicare to pay inpatient charges based on the identification of the illness for which an insured is being treated. Sometimes the rates are fair and sufficient to adequately pay a provider. They may even be higher than the billed charge. But if the patient exceeds the average length of stay or severity of condition for the particular diagnosis, the reimbursement rates can be much, much lower than the billed charges. However, this plan’s language gave the insurer and plan sponsor the ability to, on a case by case, pick and choose when it would pay the billed charges (if the DRG rates are higher) or ignore them and pay the lower DRG rates.
This created a problem for my client and other participants and beneficiaries of this plan. When a healthcare provider receives payment of only 75% of the billed charges, it generally has no obligation to walk away from the remaining 25% it hasn’t been paid. My client was left owing $36,000 to to the healthcare provider. She thought she had great medical coverage through her employer. But she was wrong. Her coverage is not at all adequate.
ERISA requires that plans disclose in their plan documents “. . . circumstances that may result in disqualification, ineligibility or denial or loss or benefits . . ..” 29 U.S.C. §1022. Does it appear to you that the language of the usual, customary and reasonable exclusion I’ve quoted above is clear and unambiguous in telling plan participants and beneficiaries that the plan has extraordinary latitude to deny significant medical expenses for pretty much any reason they want? It certainly doesn’t look that way to me. And, as my client found out, being stuck with huge unpaid medical expenses despite having coverage is very possible. The language of this particular plan gives so much latitude to the insurer/employer to deny pretty much anything they want to for any reason they choose as to provide my client with largely illusory coverage.
Shouldn’t the employer in this case be required to tell its employees and their family members in clear language that under many circumstances being covered under the plan will nevertheless leave them with significant unpaid medical expenses? At least then the employees would be able to decide for themselves whether to risk that exposure or go out and purchase supplemental health insurance coverage.