Thursday, July 28, 2011

The right to a trial by jury is (usually) precious and inviolate

Got summoned to jury service yesterday. Because no one wants a lawyer on their jury, I was unceremoniously dismissed during jury selection.

Along the way the good folks at Sonoma County Superior Court told all the prospective jurors what a valuable service they were providing. They stressed, for example, that the denial of a right to a jury trial was one of the grievances listed in the Declaration of Independence as a reason to separate from Britain. And they told us Thomas Jefferson stressed how important a right to a jury was:

"I consider trial by jury as the only anchor ever yet imagined by man, by which a government can be held to the principles of its constitution"

Compare and contrast:

Additionally, all eleven Circuit Courts that have reviewed the issue of whether there is a right to a jury trial under § 502(a) of ERISA have concluded that there is no such right. See Hampers v. W.R. Grace & Co., Inc., 202 F.3d 44, 54 (1st Cir.2000); Sullivan v. LTV Aerospace and Defense Co., 82 F.3d 1251, 1258 (2nd Cir.1996); Pane v. RCA Corp., 868 F.2d 631, 636 (3rd Cir.1989); Berry v. CIBA–GEIGY Corp., 761 F.2d 1003, 1007 (4th Cir.1985); Borst v. Chevron Corp., 36 F.3d 1308, 1323–24 (5th Cir.1994); Bittinger v. Tecumseh Prod. Co., 123 F.3d 877, 883 (6th Cir.1997); Wardle v. Central States, S.E. and S. W. Areas Pension Fund, 627 F.2d 820, 829 (7th Cir.1980); In re Vorpahl, 695 F.2d 318, 322 (8th Cir.1982); Thomas v. Oregon Fruit Prod. Co., 228 F.3d 991, 996 (9th Cir.2000); Adams v. Cyprus AMAX Minerals Co., 149 F.3d 1156, 1161–62 (10th Cir.1998); Blake v. UnionMutual Stock Life Ins. Co. of Am., 906 F.2d 1525, 1526 (11th Cir.1990).

Zuckerman v. United of Omaha Life Ins. Co., 09-CV-4819, 2011 WL 2173629 (N.D. Ill. May 31, 2011)

Friday, July 1, 2011

Eleventh Circuit: MetLife saves itself half a million dollars by exercising its "discretion" in its own favor. No problem.

I’ve discussed before the absurdity of allowing an ERISA “insurer” to be judge and jury about its own contractual obligation to, well, provide insurance. Recently we took a look at one judge’s opinion it’s not such a problem after all, because ERISA imposes supposedly sky-high fiduciary duties protecting beneficiaries from insurer abuse.

Would that it worked that way. That it doesn’t is demonstrated by this week’s Eleventh Circuit opinion in Blankenship v. MetLife. Blankenship illustrates perfectly how allowing ERISA “insurers” to exercise “discretion” over their own contractual obligations leads to disaster for claimants who deserve better.

Frank Blankenship was diagnosed with coronary artery disease, and suffered a heart attack, in 2003. Because his job as manager of a Sears Roebuck store was so stressful, and because his physicians concluded stress would very likely exacerbate his coronary condition, Mr, Blankenship submitted a disability claim to Sears’ ERISA disability “insurer,” MetLife. MetLife paid benefits for a time, and then cut them off, based on opinions it commissioned from its paid physician consultants (none of whom, by the way, ever so much as met Mr. Blankenship).

The trial judge, William M. Acker, Jr. (whose work we have enjoyed before on this blog), issued an order in January 2010 overturning MetLife’s termination of benefits. MetLife appealed, leading to the Eleventh Circuit debacle this week.

Why did the Eleventh Circuit reverse Judge Acker’s conclusion MetLife had been not only incorrect but absurdly incorrect in terminating benefits? Because MetLife had granted itself discretion in its “insurance” policy, and therefore mere federal judges could not question the decision of the MetLife Oracle:

We see nothing in the record that would lead us to conclude that MetLife did not act reasonably in relying on the independent medical opinions or in crediting those opinions over the opinions of Blankenship’s doctors.

Never mind that Mr. Blankenship’s physicians had, you know, seen him on occasion and had, you know, examined him personally. The Eleventh Circuit then moved on to conclude MetLife had no meaningful conflict of interest when it saved itself over $500,000 by terminating Mr. Blankenship’s claim:

Even if the potential claim at issue “involves over $510,000, not including future benefits,” as the district court stated, Blankenship, 686 F. Supp. 2d at 1236, the size of the award is not enough to be the dispositive factor in this case. Even half a million dollars -- a large sum, to be sure -- is a relative amount when the plan administrator is a global, Fortune 100 company with annual revenues exceeding $50 billion.

Wow. Looks like it would take a hell of a claim to convince the Eleventh Circuit MetLife operated under a meaningful conflict of interest. Of course any one claim is just a rounding error, if that, on MetLife’s books. But it is undeniable that ERISA “insurers” like MetLife spare themselves very significant costs through denying and terminating valid claims in general; this particular claim was an example of that. By requiring that the stakes in an individual claim be high enough, by themselves, to directly impact a “Fortune 100 company with annual revenues exceeding $50 billion,” the Eleventh Circuit has effectively eliminated any real impact a conflict of interest might otherwise have – and it is supposed to have an impact, as the Supreme Court has quite distinctly directed.

Read Judge Acker’s discussion of the facts, and then read the Eleventh Circuit’s views on just how flimsy a claim denial can be and still qualify as “reasonable.” And then ask yourself whether ERISA’s supposed fiduciary duties offer any real protection at all.



Monday, May 16, 2011

News: Claimants prevail before Supreme Court. Not news: "insurance" industry spins big loss as big win

See update below!

The Supremes issued a very, very nice opinion today in CIGNA Corp. v. Amara. CIGNA had played fast and loose with its workers' pensions, unilaterally changing its pension plan to shortchange the workers without telling them about the negative effects of the change. This all gets pretty arcane, because the claimants had prevailed before the Second Circuit, and the Supremes reversed, which is what CIGNA wanted.

But CIGNA should be careful what it asks for, because the reason they reversed was nothing but bad news for CIGNA and good news for the claimants.

The claimants had based their case on 29 USC section 1132(a)(1)(B), which allows courts to award aggrieved claimants the benefits due under the terms of their benefit plan. The trouble has been that no recovery beyond that has been available, other than -- maybe -- something on account of attorney fees. To get there the lower courts, based on CIGNA's lies about the terms of the replacement pension plan, ordered that the plan be "reformed": that it be amended so that it reads consistently with what CIGNA's promises to its workers had been. And then based on the terms of the plan as the court had amended it, an award of benefits to the claimants followed.

So CIGNA appealed to the Supreme Court. The Supreme Court agreed today with CIGNA that the lower courts had incorrectly used section (a)(1)(B) to reform CIGNA's benefit plan. So CIGNA won that battle.

But CIGNA lost the war, because the Court went on to hold the plan could be reformed under a different subsection of the same statute, subsection (a)(3). AND... under section (a)(3) it said a court could do a lot of other stuff too, most notably imposing a surcharge against CIGNA.

This surcharge concept is very important, because up until now the remedies available under ERISA have been severely limited. A surcharge, though, allows claimants to recover for any actual out-of-pocket losses an ERISA insurer's bad acts cause, not limited to the amount of benefits due. So, after the Amara opinion, if an ERISA insurer denies your disability benefits and causes, for example, damage to your credit rating because you can't pay your bills, and that means your cost of credit is all of a sudden higher than it had been, you can be made whole (what a concept!) for that. If an ERISA health insurer wrongfully denies your claim and you have to foot the medical bill in question, now you can probably recover for that. The precise parameters will be determined through future cases, but at long, long last the absolute bar to any compensation beyond the amount of benefits in question has been significantly weakened.

So that's a big win for claimants no matter how you look at it.

Unless you're a flak for the ERISA "insurance" industry. Let's take a look at how industry rag National Underwriter reports on the decision, in a piece remarkably entitled "Supreme Court Favors CIGNA in Summary Plan Description Case":

WASHINGTON BUREAU -- The U.S. Supreme Court has significantly narrowed the grounds an employee can use to sue for additional pension benefits based on errors in a plan’s summary plan description (SPD).
The court ruled 8-0 in favor of the plan sponsor, CIGNA Corp., Philadelphia (NYSE:CI), in CIGNA Corp. v. Amara, No. 09-804, a 2001 class-action case triggered by CIGNA's move to turn a traditional defined benefit pension plan into a cash balance plan in 1998.


Yeah, they significantly narrowed the grounds all right -- it narrows down to "CIGNA loses."

As you might expect the insurance industry will immediately start misrepresenting the meaning of the Amara case to courts all over the map, and they may well succeed in persuading some judges that Amara doesn't stand for what I say it does. But those on my side will be working equally hard to make sure Amara has the effect it should.

This is a very good day for workers, retirees, and the disabled and sick. It's a bad day for fraud and bad faith. But we need to keep working so we'll have more good days in the future, because Amara is really the first small step on a long, long road back to achieving anything approaching justice in ERISA world.

UPDATE: Roy Harmon III has posted a good discussion at his Health Plan Law blog.

UPDATE 2: My colleague Joe Creitz also weighs in with an informative post.








- Posted using BlogPress from my iPad

Thursday, May 5, 2011

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 welfare benefit plans (health, disability, life insurance, that sort of thing). But it doesn't. Quite the contrary.

Way, way to the contrary.

This blog is dedicated to the ERISA problem.

What is that problem? It mainly concerns those welfare 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 -- welfare 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:

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 in the vast majority of cases a successful claimant is not made whole; not even close. 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. 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, and ERISA says there is no meaningful consequence for that, then it follows that's what insurers will 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 generally limited to that which the insurer unilaterally decided to include within its claim file; 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.

The Republicans are gearing up to take a shot at repealing Obamacare. If that happens, then the least we could do is to ensure that those people who are fortunate enough to have insurance at least have some meaningful ability to enforce insurers' promises in court.

But never mind Obamacare; ERISA matters a lot anyway. If you get your insurance through your employment, then -- thanks to ERISA -- consider yourself to be uninsured. 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.

Friday, April 29, 2011

The high and mighty fiduciary duty: a response to Judge Fernandez

There's a Ninth Circuit case familiar to all ERISA litigators: Kearney v. Standard Insurance Company. Indeed it's quite interesting if you're an ERISA litigator; otherwise not so much.

I bring it up today to focus on a dissent in that case, written by Judge Ferdinand Fernandez, who is among other things very very smart, so I am being either brave or foolhardy because I am about to disagree with him. His Kearney dissent touches on one of the most basic dilemmas about ERISA insurers: why should we treat them as something they are not -- impartial trustees -- instead of what they are -- insurance companies looking out for their own bottom line?

Judge Fernandez thinks I am all worked up over very little:

While I see no particular point in disputing the majority's determination that this case must be remanded to the district court, I do not concur with its rationale, reasoning or result. Hence I dissent because, as I see it, the keystone of the approach favored of the majority is undue caution about treating administrator authority under an ERISA plan different from insurance company authority in the non-ERISA insurance world. However, because that keystone is defective, the whole arch of the opinion must collapse. There are two major fractures in that most important voussoir.

The first fracture exists because there is no need for such great caution. This case does not involve a mere contract; it involves an ERISA plan. The difference is exceedingly important and imposes both benefits and burdens upon any entity which is acting as an administrator of a plan. For Standard, and for all other similarly situated companies, the fiduciary nature of the duties can be a double-edged sword to say the least.


The double-edged sword Judge Fernandez percieves is that, whereas insurers under state law are allowed to pursue their own selfish interests so long as they keep to the terms of the contract, under ERISA it's different:

When it comes to ERISA, however, we cannot simply apply the same premises, even when an insurance company is involved. The whole arrangement is quite different when a company undertakes to act as a plan administrator. It, then, is not a mere contracting party; it is a fiduciary. See 29 U.S.C. §§ 1002(16)(A), 1002(21)(A). In effect, the entity creating the plan is a trustor, the administering company is a trustee, and the claimant is a beneficiary of that trust. Therefore, even though it does insure a benefit, an insurance company must act as a fiduciary must act. That actually imposes a higher duty upon it than it would undertake were it in a mere contractual relationship. It cannot simply act as a self-interested party that need only avoid violating the legal floor created by the covenant of good faith and fair dealing. It must reach much higher; it must act with the very punctilio of fairness. 1102*1102 See 29 U.S.C. § 1104(a)(1) ("[A] fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries. . . ."); NLRB v. Amax Coal Co., 453 U.S. 322, 329, 101 S.Ct. 2789, 2794, 69 L.Ed.2d 672 (1981) ("[A] trustee bears an unwavering duty of complete loyalty to the beneficiary of the trust, to the exclusion of the interests of all other parties."); Blau v. Del Monte Corp., 748 F.2d 1348, 1353 (9th Cir.1984) ("The administrator of an employee welfare benefit plan . . . has no discretion . . . to flout the . . . fiduciary obligations imposed by ERISA, or to deny benefits in contravention of the plan's plain terms."); Restatement (Second) of Trusts § 170(1)(1959) ("The trustee is under a duty to the beneficiary to administer the trust solely in the interest of the beneficiary."); Restatement (Second) of Trusts § 183 (1959) ("When there are two or more beneficiaries of a trust, the trustee is under a duty to deal impartially with them."); cf. Howard v. Shay, 100 F.3d 1484, 1488 (9th Cir.1996) (The administrator's "duties are the `highest known to the law.'").


And, adds Judge Fernandez, the principles of trust law are there to protect us:

...while it might seem a bit jarring to interpret ordinary contract language in a way that confers discretion, where one party must depend on the mere good faith of the other, it is not at all surprising to find discretionary language in an ERISA plan, where the beneficiary can insist on fiduciary behavior. In the former case, the conferral of discretion may seem downright scary; in the latter, the principles of trust law act as an anodyne for undue fears. It is true that when there is discretion courts will only review the administrator's actions for an abuse of that discretion. See Restatement (Second) of Trusts § 187 (1959). However, the high principles and standards of trust law do protect the beneficiary. No fiduciary, not even an insurance company, can draw much comfort from the fact that discretion is conferred upon it, if it acts in a lax, conflicted, arbitrary, capricious, or abusive manner toward the beneficiary.


The problem with this is that these high standards of behavior we supposedly expect from ERISA insurers have no teeth. Under ordinary insurance law an insurer may -- conceptually -- have a greater ability to look out for its own selfish interests, but if it does cross the line there can be hell to pay. If an ERISA insurer acts as Judge Fernandez supposes -- in a lax, conflicted, arbitrary, capricious, or abusive manner -- we may well wag our finger, but there are no real-world, meaningful consequences imposed on it. It's just business as usual.

Judge Fernandez would be quite correct, IMO, if there were consequences.

Or even the possibility of consequences.








- Posted using BlogPress from my iPad

Friday, April 15, 2011

A claimant speaks -- Part 2 (turns out he reads too)

Wendell Potter, former mouthpiece for the insurance industry, let his conscience be his guide, and became one of our heroes. Mr. Potter has now authored a must-read book, Deadly Spin. Our contributor-claimant read the book and, with our thanks, offers this review:

Deadly Spin: A Review



After reading Wendell Potter's book, “Deadly Spin”, I am struck at how hard it is to suppress my anger and resentment towards the man and focus on the message. This may be proof of its accuracy. There is no other way to put it. Wendell Potter willingly led an evil life. We all have to make choices about how far we are willing to go to earn our living and pay our mortgages.

The book does a solid job of explaining the problems with our for profit insurance system. It could be characterized as required reading for anyone with or without health insurance. Mr. Potter describes the problems of the system and lack of regulation. I felt he did not write enough about his “soul searching” and decision to leave Cigna. He devotes two pages and a few sentences about alcohol which could easily be expanded. I think it is important for society to understand the mind-set of those who believe they deserve power and profits at the expense of others.

I hope he is a changed person. We all deserve a chance to redeem ourselves. Welcome back to humanity, Wendell. I hope you make a difference.

I found the value of this book in its ability to educate the layperson on the tricks, tactics and manipulation techniques of the PR industry. The book provides a guide to alert the consumer when PR is negatively influencing, manipulating them.

(Disclaimer- this is a review intended to present many of the ideas in the book. As such, ideas and concepts come directly from the book. )

PR- A definition

Believe it or not, the PR industry has a Code of Ethics! It has a perverse value system but worth learning in order to recognize when you are being influenced by someone’s agenda.

Wendell Potter defines PR as "the management function that establishes and maintains mutually beneficial relationships between an organization and the public on whom its success or failure depends.” That definition emphasizes the two-way nature of PR. It is in direct opposition to the one-way communication that characterizes both propaganda and advertising. While it’s a nice definition, it’s deliberately misleading.

PR- In Action
Mr. Potter writes that good PR is intentionally subtle and hard to spot. It's about controlling what is said and thought about the client. PR firms know how and where to place their message to reach their target audiences.

In a high stakes fight, PR firms routinely create subversive front groups. They attack and discredit opponents, spread false information, lie, distort the truth and instill fear. In fact, PR firms can be so effective that they have convinced a large segment of the population to vote contrary to their own best interests. Those among us who suffer the most are voting to continue the very system, which hurts them.

The Tools of PR Industry

Knowledge remains power. If we learn to recognize the tactics and dirty tricks, we can fight back. The following is a list of tactics regularly used by the PR industry. It's worth committing them to memory. They will alert you to the fact you are being manipulated!

1. Fear

Organizations with the most to lose are most likely to resort to fear mongering. Their information may mention the loss of jobs, a threat to public health, or general decline in social values, standard of living, or individual rights. It may also vilify a specific cause or even a specific person in order to create the desired point of view.

2. Glittering generalities

This approach arouses strong positive emotions by using words and phrases like "democracy," "patriotism," "American way of life." The tactic is used to either support a cause or destroy an individuals or groups reputation.

3. Testimonials

Celebrities or recognized “experts” are frequently recruited and hired to provide testimonials about a product, cause, company, organization, or candidate.

4. Name-calling

Blatant insults are a proven, effective public-relations tool. The goal is to associate the target of the insults with a negative for unpopular cause or person. Defending against name-calling can be difficult. Negative terms tend to stick, even if they are undeserved.

5. Plain folks

Any time a business executive or politician or other individual poses with rank-and-file employees or customers, he or she is claiming to be "of the people". Being identified with"" plain folks is both good business and good politics. Do you really a billionaire is just like you and I?

6. Euphemisms

PR practitioners often select words that obscure the real meaning of actions or concepts. The tactic is sometimes called to "doublespeak"," Weasel words," or "Spin." For instance, an employee may be "transitioned" rather than fired and a lie may be called a "misunderstanding or misinterpretation."

7. Bandwagon

The bandwagon message is that everyone else is doing or supporting the process. And, you should, too. Opinion polls are created to show a large percentage of people are on the bandwagon, but polls are carefully designed and managed. Polls are shaped in advance by structuring questions to elicit specific responses.

8. Transfer

Similar to testimonials, the transfer of approach involves using the approval of a respected individual or organization. This can be used as a device by which a PR campaign can utilize the authority, sanction, and prestige of something we respect and revere in order to influence our opinion. They can also include trusted members of society such as teachers, firefighters or activists.


Protecting Yourself: How to recognize SPIN

The book gives some sound advice on how to spot the SPIN and telltale signs of a PR firm.

1) If the message sounds too good to be true, it is. Some examples include: The oil company that wants to reduce dependence on oil. The Health insurance company that wants to keep you healthy or the finance company that wants to help you make money. This is a sign of PR at work.

2) In public debate recognize when PR firm is reframing the debate in order to shift the focus away from their client. They will use misleading information to redirect blame or create controversy.

3) Recognize the affect of PR in advertising. Be wary of any ad that promotes the virtues of a corporation and its contribution to society. This includes advertising that carries a message that a company or industry is making your life better. Be wary of the use of philanthropy to counter negative publicity and questionable behavior.

4) Recognize the affect of PR firms and the use of third-party front groups. For example, the Center for Consumer Freedom is funded by tobacco companies to "protect the rights" of people to smoke in restaurants. Front groups are used to avoid revealing their funding sources. To verify true purpose of a third-party group use Sourcewatch.

Lastly, don’t forget to check out Center for Media and Democracy for validating information.

Saturday, April 2, 2011

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 welfare benefit plans (health, disability, life insurance, that sort of thing). But it doesn't. Quite the contrary.

Way, way to the contrary.

This blog is dedicated to the ERISA problem.

What is that problem? It mainly concerns those welfare 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 -- welfare 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:

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 in the vast majority of cases a successful claimant is not made whole; not even close. 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. 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, and ERISA says there is no meaningful consequence for that, then it follows that's what insurers will 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 generally limited to that which the insurer unilaterally decided to include within its claim file; 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.

The Republicans are gearing up to take a shot at repealing Obamacare. If that happens, then the least we could do is to ensure that those people who are fortunate enough to have insurance at least have some meaningful ability to enforce insurers' promises in court.

But never mind Obamacare; ERISA matters a lot anyway. If you get your insurance through your employment, then -- thanks to ERISA -- consider yourself to be uninsured. 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.


Wednesday, March 9, 2011

A claimant speaks -- Part 1

From the front lines of ERISA abuses comes the following by a claimant who's just been through the ringer of an ERISA dispute. Not gonna name him; he's an interested reader who has offered to share his experiences. If you've perused this blog at all nothing he says will surprise you. But it's yet another indication that ERISA affects real lives in very bad ways.

The claimant in question has contributed a significant amount of material, so this'll be a series, of which the first installment is here:

Canceled: “ERISA is Everyone’s Problem”


Disclaimer: The story is true. Certain facts have been changed to prevent any legal issues and protect the privacy of individuals. This account was written using a voice to text translation program, therefore, the writing style and syntax may be affected.


My decision to post on this blog is to highlight the risk posed by ERISA. The laws no longer protect the individual or society as originally intended. A modern society cannot prosper without a well functioning health system. Health Insurance is not a right or a luxury. It is a necessity. We all get sick and need to access health services throughout our life. It is also important to realize that some industries are more important than others. They play a critical role in society and are worth protecting. Two obvious examples: Health Insurance is more important than chewing gum or perfume.

This not a story arguing the merits of free markets or government controlled health care. This is a warning of what happens when industries cross a line and become dangerous to society. Throughout U.S. history, there have been movements to limit and reform predatory industries. ( Example: Theodore Roosevelt dismantling the large Trusts and Oligopolies)

Today, insurance companies have amassed so much money and power that they operate by their own set of rules. The normal checks and balances of the free market system are no longer sufficient. To use a term from economic textbooks, these companies become “predatory” to both the individual and society. We saw this recently in the banking crisis and housing bubble. Wall Street banks operated, according to their own dictates, outside of the norms of free market system. The current legislation and the free markets failed to regulate and protect society from these predators.

Free Markets vs. Predatory Markets
In economics, they make a distinction between free market competition and predatory competition. In a free market system, companies create net wealth to society through jobs, taxes and profits. In a predatory system, companies take the wealth produced and distribute the profits to a select group. For society, it’s a difference between wealth creation and wealth destruction.

In a predatory system the balance of power is squarely with the company. They have enormous power to write laws, terminate employees and operate almost without recourse.

Recent history provides many examples from Tyco to Enron. Executives pay themselves large packages regardless of operating results and profits. Management runs these companies are run as if they are the property a select few to take wealth and value from the communities that produce them.

Identifying Predators
It is not always easy to identify a predatory business. However, it’s easy to identify three important indicators:

1) High Executives compensation. They are high relative to other industries or average employee salaries and are paid regardless of economic cycles.

2) Limited Employee rights. In a free market, employees retain a measure of protection and job security for performance. Under a predatory system, operating performance, profits and high productivity do not protect employees.

3) Culture or business model. In a predatory system, you are not an employee. You are never an asset. You are a liability. You are not part of wealth creation process.


Risk to Free Market System
Historically, the self-regulation of the free market has failed to keep predators from taking control of key industries. Wherever there are markets, there is unfortunately a need for regulation. Our free market system was never intended to let the interests of a few dominate the rights of all.


My ERISA story.
For 14 years, I worked for a large, profitable medical equipment supplier *

I was injured on the job and underwent two neck surgeries. I returned to work for a ten-month period but ended up aggravating my injury. In 2005 I had to stop working. Two additional surgeries later, I found myself 43 years old, disabled, in constant pain and unable to care for myself.

However, I never lost hope. I had excellent doctors, medical insurance and the support of good friends. My treating physicians were among the best in the country. They were authorities in their fields and had authored medical textbooks.

Financially, I was surviving. I thought that as long as my former employer was financially strong, my benefits would continue. My injury was well documented and I made sure to respond to all requests for medical information. I believed any attempt to challenge my case would be a waste of time and resources for any insurance company.

In retrospect, I was naive.

Health Insurance: It’s about money
Health Insurance is a misnomer. It is not about protecting your health. It is about return on investment.

When you are paying premiums, the industry is happy to have you as a customer. However, once you start collecting on a claim, you have become a liability. Unfortunately, the more you need the payments, the bigger the liability you become. If you have the misfortune to have cancer or become disabled, you often become a priority target.

Insurance companies pay a sizeable portion of their staff to deny coverage or cancel coverage. These are not the official job titles, but its what they are paid to do. To save their jobs, they must do their jobs. They must cancel policies. It’s a vicious circle.

Storm Signals
In 2008, as the stock market bust and housing bubbles ripped through the economy, No less than Warren Buffet, whose company owns GEICO insurance, started to predict tougher times ahead for the insurance industry.

A quick check revealed that, despite the economic downturn, my disability carrier Inco (not real name) was profitable. The CEO had been among the top three earning insurance company executives for the decade. Additionally, the industry continued to do well. The U.S. Department of Health and Human Services reported that profits for the 10 largest U.S. insurance companies jumped 250% between 2000 and 2009 while millions of Americans have lost coverage.
In 2009, the trend continued. Inco executives continued to pay themselves enormous salaries. This could only be done by large scale cost cutting. I started to get nervous.

I did not know, as early as 2009, Inco had already decided to terminate my benefits. They were in the process of constructing a paper trail. After all, ERISA has been gutted. For Inco, there was no risk in trying.

Cancellation: Actions without consequences
The outline below describes a series of deliberate actions by Inco in flagrant violation of good faith and proper procedure. They are examples of Inco, deliberately withholding information, omitting material facts and misleading treating physicians.


Violation #1:
In violation of due procedure, Inco called my lawyer to inform him my benefits had been terminated retroactively at the end of the prior month.

Violation #2:
Inco did not send an explanation letter until three weeks post termination. The letter did not correspond to the reasons cited in the phone conversation.

Violation #3:
For cause of termination, Inco stated, failure to supply medical information. Yet, in the same termination letter, they referenced the information they claimed to be missing. Inco refused attempts to clear up any misunderstandings.

Violation #4
The Inco medical report and termination letter deliberately omitted basic information including: Diagnosis, number and types of surgeries, results of surgeries, use and indication for medications, daily functional state and ability to perform work.

Violation #5
Inco deliberately misrepresented the opinion of treating physicians. Several attempts by the physician and my attorney to rectify the situation were ignored.

Violation #6
In a request for medical information, Inco deliberately misled a treating physician. Several attempts to clear up the matter were ignored.

In the end, I was lucky. Inco had so clearly violated good faith and misrepresented the facts that benefits were eventually reinstalled. I suffered financial damages and was nearly forced to sell my condo. Under ERISA I am not entitled to recover any financial losses. I can only wonder how many others were cancelled and unable to reinstall benefits either due to lack of financial resources, lack of legal representation or failure to keep documentation.

ERISA is the Problem
As noted in the blog, the insurance industry has changed the ERISA laws to exempt themselves against wrongful termination as well as losses and damages inflicted on improperly or illegally terminated policies. There is nothing to stop an insurance company from withholding benefits and waiting you out to see if you have the financial resources, education, and legal skills to regain your benefits.


What to do:
There are several steps to take to educate and protect yourself. I’ve outlined a few below.

1) Be proactive: Understand it can happen to you
2) Support reform: It is the right thing
3) Take care of your health.
4) Educate yourself on your health plan and benefits providers.
5) Keep records of all communication with insurance companies.

Tuesday, March 1, 2011

"Insurers can make erroneous arguments with near impunity when it comes to the 112.8 million life and accidental death policies provided by companies and associations to their employees and members. That’s because of loopholes in a federal law intended to protect worker benefits."

That's a quote from a Bloomberg article about insurance company abuses of claimants under Accidental Death and Dismemberment insurance policies.

And what is the federal law in question?

Three guesses.

Read the whole thing.

Tuesday, February 22, 2011

No shame in struggling

He has a lot of people who love him and there's no shame in struggling because we all have, or will struggle eventually.

That's a response by Warden, EM, the brother of a man apparently (or at least potentially) pulled back from the brink of oblivion by the commenters over at Ace of Spades yesterday, as conveyed in turn by Warden. Their politics, as a rule, diverge from mine with some frequency, but that doesn't matter here. As a group they stepped up yesterday and tossed a lifeline.

As you might imagine, I see great deal of struggling in my law practice, dealing as I do with folks who've had critical insurance benefits denied when they needed them most. Disability benefit claimants and their families struggle to do without the financial lifeline they were led led to believe would be there. Health benefit claimants and their families struggle to persevere in the face of terrifying medical issues bereft of the peace of mind their insurance was supposed to provide. Pension claimants and their families face their dotage under the specter of impoverishment.

And some of them experience shame as a result of their struggles. In the main these are people who have worked hard for many years to earn -- earn -- the benefits which are ultimately denied to them. They are accustomed to, and have earned, self-sufficiency. And they are told when they seek the insurance benefits they have earned that they're goldbrickers, malingerers, frauds. And they must seek help, or suffer in silence.

There's no shortage of shame these days, albeit most often from things far from shame-worthy. Meanwhile there often seems to be no shame at all where it ought to be.

I'm looking at you, ERISA insurance industry.

I am proud of my ERISA clients, as they seek to recoup no more than what they have earned. They do not only help themselves: their struggles sometimes lead to tweaks in an unfair law which might ameliorate the suffering of others in the same way.

We make our meager efforts to help ERISA claimants get the benefit they've earned, and sometimes to facilitate their recoupment of the pride and peace of mind they've earned. Others struggle in a multitude of manners in other arenas. No one -- no one -- makes it through without struggling.

So whatever your struggles may be, there's no reason for shame on that account. Fight the good fight, whatever your fight may be.

Thanks to the folks at Ace of Spades, and to EM and Warden, who remind us all there's no shame in struggling.

BTW, the Ace of Spades Morons (their word, not mine) are very, very witty, and more entertaining commentary is nowhere to be found IMO. And yesterday they just might have saved a life.

Thursday, February 17, 2011

"Many might be surprised to learn that defendant has no legal duty to make things right under those circumstances."

This was the observation of U.S. District Court Judge Barbara B. Crabb of the Western District of Wisconsin, in her decision in Kenseth v. Dean Health Plan,. Inc.:

Kenseth v. Dean Health Plans, Inc.

It comes as no surprise, of course, that "no legal duty" means "no duty under ERISA."

What are the circumstances Judge Crabb had in mind? Why, it's just an ERISA health insurer doing what ERISA insurers do: Dean "has refused to provide [Ms. Kenseth] any relief after lulling her into believing that she had coverage for an expensive operation, only to reverse course after the procedure was performed, leaving her with a stack of medical bills."

So Ms. Kenseth is told by Dean Health Care, before undergoing expensive surgery, that the surgery was a covered benefit of her ERISA health plan. Ms. Kenseth undergoes the surgery. Dean says oops! Did we say the surgery was covered? Our bad!

But, of course, not our problem.

Here's the skinny, as described by Judge Crabb:

In 1987, plaintiff had gastric bands placed around her stomach to help her lose weight. Years later she needed to have the bands removed after she began experiencing acid reflux that was damaging her esophagus. By that time, she had changed employers and had a different health plan through defendant. In 2005, she called defendant’s customer service number and was told that her health insurance would cover the procedure. However, after plaintiff underwent surgery, defendant denied plaintiff’s claim under a provision that precluded coverage for procedures related to obesity. The court of appeals concluded that these facts supported a claim for breach of fiduciary duty under ERISA:

The facts support a finding that Dean breached its fiduciary duty to Kenseth by providing her with a summary of her insurance benefits that was less than
clear as to coverage for her surgery, by inviting her to call its customer service
representative with questions about coverage but failing to inform her that whatever the customer service representative told her did not bind Dean, and by failing to advise her what alternative channel she could pursue in order to obtain a definitive determination of coverage in advance of her surgery.

So what Dean did was not only unfair and, to say the least, negligent, but its conduct also constituted a breach of the fiduciary duties an ERISA insurer is expected to fulfill. So what was the problem?

ERISA provides no remedy for the breach of fiduciary duty Dean committed, that's what. Judge Crabb describes the reasons for this finding at length in her opinion, and it is worth a read to see just how absurd the thicket is for those who have been defrauded by their ERISA insurance carriers.

I think Judge Crabb got it wrong, and there are arguments to be made that even under ERISA a remedy should have been available. But she's got plenty of company, probably the majority, in her evaluation of the issues. And I don't have "U.S. District Court Judge" in front of my name.

There's an old legal maxim that for every wrong there is a remedy. As with most other things the usual rules don't apply in an ERISA case. Sure, ERISA defines what Dean did as a wrong -- a breach of its fiduciary duty. But in the absence of any meaningful consequence what incentive does Dean have to live up to its fiduciary obligations?

None.

Tuesday, February 8, 2011

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 welfare benefit plans (health, disability, life insurance, that sort of thing). But it doesn't. Quite the contrary.

Way, way to the contrary.

This blog is dedicated to the ERISA problem.

What is that problem? It mainly concerns those welfare 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 -- welfare 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:

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 in the vast majority of cases a successful claimant is not made whole; not even close. 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. 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, and ERISA says there is no meaningful consequence for that, then it follows that's what insurers will 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 generally limited to that which the insurer unilaterally decided to include within its claim file; 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.

The Republicans are gearing up to take a shot at repealing Obamacare. If that happens, then the least we could do is to ensure that those people who are fortunate enough to have insurance at least have some meaningful ability to enforce insurers' promises in court.

But never mind Obamacare; ERISA matters a lot anyway. If you get your insurance through your employment, then -- thanks to ERISA -- consider yourself to be uninsured. 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.

Monday, January 31, 2011

You know I don’t even think it’s constitutional

Consider ERISA. Now think about the most unfair and one-sided legal process you can imagine. But I repeat myself.

When something is as unfair as ERISA, and violates some of our most basic ideas about how the judicial process should operate (like a man not being a judge in his own case, for example), you have to wonder whether the Constitution might not have something to say about it. If you ask me, it does.

The Fifth Amendment does more than just allowing people to clam up if they’re about to incriminate themselves. It also “forbids the federal government from depriving persons of ‘life, liberty, or property, without due process of law.” Buckingham v. Sec'y of U.S. Dept. of Agr., 603 F.3d 1073, 1081 (9th Cir. 2010). Now your entitlement to, say disability benefits, from an ERISA-governed insurance policy, very very likely qualifies as a property interest. (I’m gonna cheat and just assume it does, because I want to get to the good stuff, but I am pretty sure I’m right).

And what is one of the most, if not the most, important component of due process? It’s “an impartial and disinterested tribunal in both civil and criminal cases.” Marshall v. Jerrico, Inc., 446 U.S. 238 (1980). As recently as 2009, in Caperton v. A.T. Massey Coal Co., Inc., the Supreme Court observed “It is axiomatic that “[a] fair trial in a fair tribunal is a basic requirement of due process.”

So what process do you get under ERISA? First, you get a decision by an insurance company, essentially a “reconsideration by the insurance company as to whether it should continue to pay benefits, and thus reduce its profits.” That’s not an “impartial and disinterested tribunal.”

Then you go to court and the judge, who is impartial, is legally required to have a thumb on the scale in the insurance company’s favor. So a fair decisionmaker is required, by law, to use an unfair process, where the unfair decision made by the insurance company comes with a wholly undue presumption of correctness. The question is, then: does this presumption of correctness, given that the decision under review was made by a party to the very dispute in question, create a derivative constitutional defect?

That phrase “derivative constitutional defect” is not mine; I stole it from a 1993 Supreme Court case – an ERISA case! – called Concrete Pipe & Products of Cal. v. Construction Laborers Pension Trust for Southern California. It was about “withdrawal liability,” which refers to the funds an employer owes when it withdraws from a multi-employer pension plan, to make sure it has paid enough to account for its employees’ share of future pension benefits. The way it works is that the pension fund tells the withdrawing employer how much it owes, and the employer says take a flying leap, that’s way too high a figure. Under ERISA this type of dispute goes first to a neutral arbitrator, and if the employer disagrees with the arbitrator’s decision, it goes to a court – which has to presume the arbitrator was correct, very much like a court treats an insurer’s denial of benefits with “deference.”

The Supreme Court decided this was OK under the Fifth Amendment, but look how they arrived at that conclusion:

Because the statute as we construe it does not foreclose any factual issue from independent consideration by the arbitrator (the presumption is, again, assumed by all to be inapplicable to issues of law), there is no constitutional infirmity in it. For the same reason, that an employer may avail itself of independent review by the concededly neutral arbitrator, we find no derivative constitutional defect infecting the further presumption that a district court must afford to an arbitrator's findings of fact.

See what they did there? In order for it to be constitutional for a court to treat a litigant’s own decision with deference, somewhere along the line there has to be an “independent review by a concededly neutral arbitrator.” Otherwise, there’s a “derivative constitutional defect.”

An ERISA insurer, of course, is not “concededly neutral.” And its obviously un-neutral decision gets treated with deference by a court. But where is the neutral arbitrator in between? It’s not there.

And so, we see that ERISA’s approach to adjudicating insurance disputes is not only absurd and unfair – it’s unconstitutional.

Monday, January 17, 2011

ERISA: Pro-insurance-industry, not pro-free-market

Ilya Somin, over at Volkh Conspiracy, writes today about the insurance industry’s approval of the Health Care Reform bill. As he points out, it’s not surprising they’re in favor of the bill; “Is there any industry that wouldn’t support a law requiring people to buy its products?”

One of Mr. Somin’s premises is that there’s a big difference between a court being “pro-business” and “pro-free-market,” although the latter is mistaken for the former. Indeed, they’re often directly opposed to each other, since big business (having achieved bigness) is not inclined to be in favor of competition.

Because Mr. Somin believes the Supreme Court is more pro-free-market than it is pro-big-business, he doubts the fact the insurance industry likes Health Care Reform will have much of an effect when it comes time for the Court to make it HCR decision.

This makes a lot of sense to me, and that in turn makes me wonder why the insurance industry has so successfully worked its will with ERISA. Particularly in more recent years, the industry has been allowed to get away with murder, and the courts have quite often rationalized that result with the observation that ERISA was designed (in part) to encourage employers to offer benefit plans, and we don’t want to make it too expensive for them. Just last year, in Conkright v. Frommert, Chief Justice Roberts said 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."

OK, fair enough. We don’t want to make it too inconvenient or expensive for employers to set up benefit plans. Insurance companies, of course, are not employers (not in this context at any rate). And the implicit threat they will ratchet up premiums to an unaffordable level if we make them refrain from committing fraud live up to their promises makes the ERISA insurance industry a big extortion racket: “Nice health care plan you have there, I’d hate to see anything happen to it.”

So, in the name of encouraging employers to offer employee benefits, we allow the vendors of those benefits to offer products which are, in a word, illusory. They promise things in their insurance policies and, when it comes time to make good on their promises, they refuse to do so – “in their discretion.

ERISA is a big counterpoint to what I believe to be Mr. Somin’s generally correct observation that the insurance industry’s approval of HCR “probably won’t give much pause to the conservative justices on the Supreme Court, assuming the latter are otherwise inclined to strike down the mandate.” Under ERISA, the Court has refused to enforce some of the most basic principles of the rule of law which is necessary for a free market to function, like, say, breach of contract.

Which leads me to another post to which Mr. Somin links: John Cochrane’s proposal of a way to deal with pre-existing conditions should the individual mandate be struck down. There’s one big weakness with Mr. Cochrane’s otherwise persuasive idea: it depends on the observation “And courts do still enforce contracts.” In ERISA cases, not so much. Mr. Cochrane’s proposal for a free-market way to facilitate coverage for pre-existing conditions would not work without very careful vigilance against ERISA-style immunity, for the insurance industry, from liability for everything up to and including outright fraud.

And don't think the insurance industry would not forcefully push for that sort of immunity (recall they managed to keep it in the HCR bill). After all, if we don’t let them commit fraud with impunity, how can they be expected to offer their product at a reasonable price?

Monday, January 3, 2011

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 welfare benefit plans (health, disability, life insurance, that sort of thing). But it doesn't. Quite the contrary.

Way, way to the contrary.

This blog is dedicated to the ERISA problem.

What is that problem? It mainly concerns those welfare 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 -- welfare 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:

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 in the vast majority of cases a successful claimant is not made whole; not even close. 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. 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, and ERISA says there is no meaningful consequence for that, then it follows that's what insurers will 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 generally limited to that which the insurer unilaterally decided to include within its claim file; 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.

The Republicans are gearing up to take a shot at repealing Obamacare. If that happens, then the least we could do is to ensure that those people who are fortunate enough to have insurance at least have some meaningful ability to enforce insurers' promises in court.

But never mind Obamacare; ERISA matters a lot anyway. If you get your insurance through your employment, then -- thanks to ERISA -- consider yourself to be uninsured. 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.