Wednesday, February 24, 2010

Danny DeVito on why insurance companies lack character

You see, to develop character you need to understand and acknowledge to yourself your mistakes; you “wish you had it to do over but you know you can’t, because it’s too late”:

In ERISAworld insurance companies get do-overs all the time. So of course they lack character.

Consider, for example, Leger v. Tribune Company Long Term Disability Benefit Plan, a 2009 case out of the Seventh Circuit. According to the court, Lisa Leger “suffers from a debilitating condition and must expend a great deal of effort to cope with her condition. She has had seventeen surgeries and procedures over the last twenty years.” The ERISA insurer on the case, MetLife, nonetheless terminated her disability insurance benefits, basing its decision on opinions rendered by its paid file-review physicians that Ms. Leger could work despite what the Seventh Circuit found to be a “debilitating condition.” Ms. Leger argued MetLife “cherry-picked the statements from her medical history that supported the decision to terminate her benefits, while ignoring a wealth of evidence to support her claim that she was totally disabled,” and the court agreed, finding MetLife “acted in an arbitrary and capricious manner in terminating Ms. Leger’s benefits.”

So Ms. Leger won her case and was able to recover the stingy benefits ERISA allows, right?

Wrong! It may be true that in life there are no do-overs, but that doesn’t apply to an ERISA insurer. The court sent Ms. Leger’s file back to MetLife so it could have a second chance to terminate her benefits, this time with knowledge of where it had gone wrong in the court’s view. Did Ms. Leger get her past-due benefits? That was left up to MetLife, the same company which had already “cherry-picked the statements from her medical history” and ignored “a wealth of evidence to support her claim that she was totally disabled.”

So are we to take from this the lesson that the appropriate punishment for bank robbery is to give the robber another chance to walk past the bank without robbing it, as if the original crime had never occurred? Apparently, in ERISAworld, that’s how it works.

So ERISA insurers have no regrets. And no character.

Monday, February 22, 2010

A Long and Good Life

This has nothing to do with ERISA, but it’s my damn blawg and she deserves a mention by her son.

My mom passed away yesterday morning, very peacefully and without apparent suffering. 88 years old. Raised four kids on her own well before such a thing was commonplace. Did a great job. Never let us down although we let her down many times. Taught kindergarten for about 35 years, in a school populated by disadvantaged kids who benefitted greatly by her work. And then had to come home each day and deal with the likes of me. Worked very hard for many years to provide her kids with a shot at an education and a decent life.

Jane Eden Johnston, 1922 - 2010.

She’ll be missed. Very, very much.

Monday, February 1, 2010

The Problem, redux

Around the first day of each month I'll be posting a reprise of the first post on this blog, which contains an overview of the Problem. It'll be updated and edited as we go along. But I'd like to have a summary of the Problem available frequently, hence the monthly repeat and update. So off we go...

ERISA is the Employee Retirement Income Security Act, and it is codified in Title 29 of the United States Code, starting with section 1001. It's federal law, enacted in 1974, and it was supposed to protect employees' rights in connection with their pension plans and benefit plans (health, disability, life insurance, that sort of thing). But it doesn't. Quite the contrary.

This blog is dedicated to the ERISA problem.

What is that problem? It mainly concerns those benefit plans (ERISA is actually not a bad law with respect to pension plans). Pension plans is what they had in mind when they enacted it -- benefit plans were an afterthought.

And it shows. If your insurance company wrongfully denies your claim, you might figure you can always take them to court. You can do that (usually), but when you get there you'll find things don't make any sense. We'll go into the particulars soon, but for now:

If you get your insurance coverage through your employment, then in virtually every case ERISA preempts state law (meaning it cancels it out, eradicates it, takes its place). But, having gutted state law relating to insurance disputes, it fails to provide any reasonable substitute. The remedies it provides (i.e. what you get if you win a lawsuit) are very, very stingy. And ERISA severely compromises your ability to secure even the scant remedies it does provide.

1. Remedies. ERISA limits the recovery you might get to the benefits which should have been provided in the first place, and an award on account of attorney fees in the court’s discretion. Example: you have your disability benefits wrongfully denied. As a result, you have no income, your credit rating is trashed, you lose your home and you are driven into bankruptcy. You file your ERISA suit and against the odds, you win. What do you get? The benefits they should have been paying you back when it might have done you some good. That's all (you might -- might -- get something on account of your attorney fees too).

The trashed credit, the lost home, the bankruptcy, the ruined life? Bupkis. ERISA does not allow for any recovery on account of these sorts of consequential damages -- none. And this applies even if the insurance company committed outright fraud when it denied your claim. Incidentally, I find it quite difficult to understand why the insurance industry, uniquely among all industries in America, needs to have immunity from liability for fraud if it is to offer its services at a reasonable price. Anyway, this concern goes beyond making people whole; it also directly impacts the behavior of insurance companies.

As of now we have a situation where the law tells insurers they face no meaningful consequences if they deny care improperly or even commit outright fraud. As one federal judge has commented, "if an HMO wrongly denies a participant's claim even in bad faith, the greatest cost it could face is being compelled to cover the procedure, the very cost it would have faced had it acted in good faith. Any rational HMO will recognize that if it acts in good faith, it will pay for far more procedures than if it acts otherwise, and punitive damages, which might otherwise guard against such profiteering, are no obstacle at all." Insurance companies, of course, are not charities, but corporations; their boards are subject to a fiduciary duty to maximize shareholder value. If it is possible to accomplish this by mistreating insureds, then it follows insurers will do precisely that (and believe me, they do).

2. Procedure. In ERISA litigation, courts have determined among other things that there is no right to a jury; that discovery (the pre-trial process where you obtain the other side's documents, take depositions and such) is to be significantly abridged; that the evidence which may be introduced at trial is limited to that which the insurer deigned to assemble during its claims evaluation process; and that, when the policy contains language vesting "discretion" in the insurer, if you prove the insurance company was wrong -- you lose. In order to win, you must prove the denial was "arbitrary and capricious" -- that is to say, ridiculous, absurd, unintelligible, crazy. And lo and behold, the insurance companies grant themselves "discretion" when they write their policies. In this way we treat insurance companies as if they were federal judges. But Learned Hand they are not.

These days we're all debating health care reform and what to do about the uninsured. ERISA matters a lot here, because if you get your insurance through your employment, then consider yourself to be in that group. If by "insurance" you mean something like an enforceable promise by an insurance company that it will pay for what it says it will, what you have doesn't qualify. What you have is a piece of paper saying some company will pay your claim if it feels like it. You don't have insurance at all -- you only think you do.