Monday, January 25, 2010

Of "across state lines" and ERISA's roots: a response to Bookroom Room commenters

I’ve been enjoying some give-and-take recently over at Bookworm Room, where my views generally receive a skeptical but respectful reception (they're conservative, libertarian, and/or neo-con in the main, and I'm .. not). Since a comment I started to leave evolved into my usual long-winded bloviating, it seemed to make more sense as a blog post. For context see the Bookroom Room discussion (and you’ll probably want to stick around for some provocative and generally respectful debate). Here goes:

I always seem to get into these things when there’s actual professional work to be done. So I don’t have the time I wish I had to respond in full to the thoughtful comments above. But...

It also appears to me that his cases go to court because courts are permitting insurance companies to avoid what seems to be very reasonable terms of contract – he describes a case where the company was attempting to avoid settlement because the beneficiary couldn’t absolutely without question have had an accidental fall without any possible contributing factor. That’s absurd, which the court decided.

This illustrates the problem we have with employment-based insurance. The insurance company won the case in question, because it had so-called “discretion” to determine which claims got paid and which didn’t. Because the insurer was able to come up with what amounted to a theory – just a theory – about how the insured could have died in a non-accidental way, that was enough for the denial of the claim to be upheld in court. That’s where the passage I quoted from the court’s opinion comes in – even where the insurance company decision “appears to be incorrect,” if phony-baloney “discretion” is vested in the insurer (by the terms of the insurer’s own policy, mind you) then the incorrect decision nonetheless had to be upheld. You can read the actual case itself here.

And I don’t think the insurance he describes is the same as the health insurance situation – one of the reasons it’s difficult to buy insurance across state lines is, as he has said, because states put different requirements in place. The feds also require “equality” so that men have to pay for reproductive insurance just as women do, because it’s “unfair” to charge women more. Ditto for various optional operations. And dental care. Obviously, the more you include, the more it’s going to cost everybody. If people could choose a basic package – or check off a list of what they want covered, maybe it would be different – but they can’t. They have to buy the whole package, as specified by legislators. It doesn’t make sense.

I actually agree that a bare-bones catastrophic policy should be readily available, and that state laws which impede that are bad policy (note we are talking primarily about individual, not group insurance here). The concern I have, however, really has to do with federalism: the “across state lines” thing results in the state with the least rigorous regulation evolving into the de facto insurance regulator for the entire country. That’s where the credit card analogy arises: New York, for good or ill, wanted to enforce a maximum interest rate that credit card issuers could charge, and the credit card industry got around that by convincing South Dakota and Delaware to enact laws with no caps whatever, and then moving their operations to one of those states. Because in the credit card industry, issuers are regulated pursuant to Supreme Court authority only by the state of their domicile, New York was powerless to enforce its own regulations within its own borders (as is every other state). And that’s where “across state lines” gets us with respect to health insurance. I acknowledge the problems with onerous state law requirements about mandated coverage which any given consumer may not want to purchase, but the answer is not, IMO, to gut the states’ ability to regulate entirely. The answer, IMO, is to lobby state regulators to relax mandatory coverage provisions, not to require that every state in the country cede to the South Dakota of the health insurance world (Connecticut being a likely candidate) the design of the regulatory structures.

He’s been here before, Suek. So I can qualify him as a good guy who isn’t very good at deceiving himself concerning the realities of government corruption. That doesn’t make him flawless, but it does make him better than the average conception of a lawyer.


The dichotomy is that ERISA is a union backed federal regulation which was intentionally designed to loot businesses to favor unions, and which coincidentally motivated businesses to setup the job-healthcare connection. Yet even knowing this, Johnston views the solution in the prism of the law, of changing or creating regulations, rather than of a political science or philosophy of life that originates from elsewhere.

Well, despite Ymarsakar’s failure to recognize my patent flawlessness, his observations merit a response (seriously, I do appreciate his remarks here). First I take issue with his description of ERISA’s roots: it was enacted in response to the failure of the Studebaker pension plan, and was in fact opposed by unions (following is an excerpt from Wikipedia -- the reliability of which is open to question but in this case I will vouch for its accuracy based on my own research and understanding of the history):

The history of ERISA can be said to have begun in 1961 when President John F. Kennedy created the President's Committee on Corporate Pension Plans. The movement for pension reform gained some momentum when the Studebaker Corporation, an automobile manufacturer, closed its plant in 1963; the pension plan was so poorly funded that Studebaker could not afford to provide all employees with their pensions. The company created three groups. Group 1 consisted of 3,600 workers who reached the retirement age of 60. They got full pension benefits. Group 2 consisted of 4,000 workers, aged 40–59, who had ten years with Studebaker. They got lump sum payments that roughly equated to 15% of the actuarial value of their pension benefits. Group 3 was a residual group of 2,900 workers with no vested pension rights. They got nothing.

In 1967, Senator Jacob Javits proposed legislation that would address the funding, vesting, reporting, and disclosure issues identified by the presidential committee. His bill was opposed by business groups and labor unions, both of whom sought to retain the flexibility they enjoyed under pre-ERISA law.

A turning point in the history of ERISA came in 1970, when NBC broadcast Pensions: The Broken Promise, an hour-long television special that showed millions of Americans the consequences of poorly funded pension plans and onerous vesting requirements. In the following years, Congress held a series of public hearings on pension issues and public support for pension reform grew significantly.

ERISA, as I have said elsewhere, is not a bad law at all with respect to pension plans. The problem arises with the fact that, as a complete afterthought, Congress decided it would govern not only pension plans but benefit plans (employer-provided health, disability, life insurance being the primary examples). And the malignant effects about which I have complained can be traced primarily, IMO, to two misguided Supreme Court decisions. First, in 1987, was Pilot Life v. Dedeaux, in which the Court said state law remedies for things like bad faith, fraud and wrongful death were not available against ERISA insurers, and all that was available were the very stingy remedies ERISA itself provided, removing any incentive for insurers to behave themselves. Then in 1989 came Firestone v. Bruch, which led to the absurd “abuse of discretion” burden of proof which has ever since made it absurdly difficult to recover even those stingy remedies. The combined effect of these rulings and their fallout has been to allow insurers to run roughshod and to commit fraud and kill people with impunity. And the “marketplace” has been a feeble check on their behavior, if only because the people purchasing the policy (employers) are not not the same people who end up being ripped off (employees and their dependents).

1 comment:

  1. And the “marketplace” has been a feeble check on their behavior, if only because the people purchasing the policy (employers) are not not the same people who end up being ripped off (employees and their dependents).

    By that principle, you shouldn't have the government making laws, due to Union backed special interest bribes, to 'ensure' these kinds of benefits in the first place.

    Remove the abuse of power, the government intervention itself, and you don't have to fix the dam when it bursts.