Thursday, July 29, 2010

Don’t you just hate it when judicial activists rewrite the law?

Let us consider the definition of “judicial activism,” as described by the good people at Wikipedia:

Black's Law Dictionary defines judicial activism as a "philosophy of judicial decision-making whereby judges allow their personal views about public policy, among other factors, to guide their decisions."

Indeed it is quite frustrating when unelected judges, based on their own views of wise public policy, presume to overturn the considered judgments of a popularly-elected legislature.

ERISA law is the way it is today as a result of rampant and repeated judicial activism. With ths post we begin a series of examinations of the various ways in which Congress’ initial intent behind ERISA has been not only disregarded but corrupted by activist judges.

For starters, let’s begin with a big whopper: the idea that ERISA was primarily intended to induce employers to offer benefits, any benefits, to employees -- by making those benefits dirt cheap. This rationale has been used as a justification for everything from denying discovery, to using an absurd “standard of review,” to denying any sort of meaningful relief for aggrieved beneficiaries of ERISA plans.

It’s a lie.

How do we figure out what Congress was trying to do when it enacted ERISA? That would require a lot of research and digging, but for the fact Congress was kind enough to tell us, in the very first section of ERISA, 29 USC §1001. Congress said it passed ERISA because:

...the growth in size, scope, and numbers of employee benefit plans in recent years has been rapid and substantial; ... that the continued well-being and security of millions of employees and their dependents are directly affected by these plans; ... that owing to the lack of employee information and adequate safeguards concerning their operation, it is desirable in the interests of employees and their beneficiaries, and to provide for the general welfare and the free flow of commerce, that disclosure be made and safeguards be provided with respect to the establishment, operation, and administration of such plans; ... that despite the enormous growth in such plans many employees with long years of employment are losing anticipated retirement benefits owing to the lack of vesting provisions in such plans; that owing to the inadequacy of current minimum standards, the soundness and stability of plans with respect to adequate funds to pay promised benefits may be endangered; that owing to the termination of plans before requisite funds have been accumulated, employees and their beneficiaries have been deprived of anticipated benefits; and that it is therefore desirable in the interests of employees and their beneficiaries, for the protection of the revenue of the United States, and to provide for the free flow of commerce, that minimum standards be provided assuring the equitable character of such plans and their financial soundness.

Now, I left out some language, indicated by the ellipses, so that this blog post doesn’t become more lengthy than my usual verbose legal briefs. But you can check it against the full version; there’s not a word in there which indicates any Congressional concern with making employee benefits cheap for employers to provide, regardless of how illusory those benefits may be, and certainly nothing about a concern for poor little insurance companies who are haled into court when they defraud someone. Later in the same statute Congress tells us it is enacting ERISA: protect interstate commerce and the interests of participants in employee benefit plans and their beneficiaries, by requiring the disclosure and reporting to participants and beneficiaries of financial and other information with respect thereto, by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the Federal courts.

So we know what Congress was trying to do, and we know what concerns were behind its enacting ERISA.

Now fast-forward to 2010, and the Supreme Court’s recent decision in Conkright v. Frommert:

Congress enacted ERISA to ensure that employees would receive the benefits they had earned, but Congress did not require employers to establish benefit plans in the first place. Lockheed Corp. v. Spink, 517 U.S. 882, 887, 116 S.Ct. 1783, 135 L.Ed.2d 153 (1996). We have therefore recognized that ERISA represents a "`careful balancing' between ensuring fair and prompt enforcement of rights under a plan and the encouragement of the creation of such plans." Aetna Health Inc. v. Davila, 542 U.S. 200, 215, 124 S.Ct. 2488, 159 L.Ed.2d 312 (2004) (quoting Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987)). Congress sought "to create a system that is [not] so complex that administrative costs, or litigation expenses, unduly discourage employers from offering [ERISA] plans in the first place." Varity Corp., supra, at 497, 116 S.Ct. 1065. ERISA "induc[es] employers to offer benefits by assuring a predictable set of liabilities, under uniform standards of primary conduct and a uniform regime of ultimate remedial orders and awards when a violation has occurred." Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 379, 122 S.Ct. 2151, 153 L.Ed.2d 375 (2002).

That’s Chief Justice Roberts writing, there, for a 5-3 majority (Justice Sotomayor didn’t participate in this case).

Notice how, for every proposition about ERISA being supposedly concerned with “administrative costs,” or “litigation expenses,” or “a predictable set of liabilities,” he is able to cite to previous cases which said those things. So Chief Justice Roberts isn’t alone in this, although he sure seems like a true believer.

Notice, though, what's missing? Chief Justice Roberts is able to offer not a single citation to the ERISA statute, as passed by Congress, to support this passage. This stuff is all judge-made baloney.

Now, no one pretends administrative and litigation expenses and such are not important in themselves. But the fact is that Congress did not mention them, at all, when it described its reasons for enacting ERISA. And, important as these things are, it is judicial activism, pure and simple, to decide they trump what Congress was trying to do: protect beneficiaries and participants in employee benefit plans.

More later...

Wednesday, July 7, 2010

Health insurance scammers overlook the low hanging fruit

The Insurance Journal reports:

Bob Harper thought he'd found a better health-insurance deal. The Oklahoma man bought coverage from an outfit called American Trade Association (ATA). The price seemed affordable, and he thought he'd save decent money while maintaining a solid healthcare safety net.

Harper's heart then went bad. His strength fading, he urgently needed a pacemaker. But he discovered too late that ATA was fake. Trying to find legitimate health protection he was having trouble convincing insurers to cover him because of his pre-existing condition.

A Colorado man was gravely hurt in a hit-and-run accident. His hospital bills soared to $43,000 before he died. His so-called health plan, the National Trade Business Alliance, paid out just $250, the insurance department says.

More victims like these are showing up as fake health plans operate widely around the United States over the last two and a half years, exploiting people's anxiety over finding affordable coverage amid rising premiums, mounting layoffs and general financial distress in a downturned economy.

These guys are missing their prime target demographic. Instead of defrauding people one at a time, they could defraud entire groups of people by just going into the ERISA insurance business. The Insurance Journal goes on to report:

Bogus health plans can take blindingly diverse and complex forms, often deliberately to camouflage their illicit operations from regulators. But basically, most promise full-benefit coverage yet deliver lesser products such as:

Fake coverage that's a worthless piece of paper

(emphasis added). Heck, that’s the working definition of an ERISA “insurance” policy right there! And they could do it with immunity from legal liability for fraud.

Get with it, guys!

Tuesday, July 6, 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.