The Problem is ERISA

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

2011-07-28T12:25:00.000-07:00

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)

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

2011-07-01T13:38:00.000-07:00

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.

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

2011-05-16T19:25:00.001-07:00

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.

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The Problem, redux

2011-05-05T12:11:00.000-07:00

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.

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

2011-04-29T10:47:00.001-07:00

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.

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

2011-04-15T10:56:00.000-07:00

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.

The Problem, redux

2011-04-02T12:23:00.001-07:00

A claimant speaks -- Part 1

2011-03-09T13:45:00.000-08:00

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.

"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."

2011-03-01T10:57:00.000-08:00

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.

No shame in struggling

2011-02-22T10:04:00.000-08:00

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.

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

2011-02-17T14:39:00.000-08:00

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.

The Problem, redux

2011-02-08T17:50:00.001-08:00

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

2011-01-31T11:35:00.000-08:00

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.

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

2011-01-17T10:09:00.000-08:00

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?

The Problem, redux

2011-01-03T18:38:00.000-08:00

Holiday break

2010-12-20T14:32:00.001-08:00

As you can see from a quick look at this blog, I have taken the month of December off from blogging. A confluence of circumstances, and holiday madness, have taken all of my time and then some. After the new year we'll pick up again exploring the many, many ways in which ERISA ruins lives.

Fourth and long: ERISA beats the spread against NFL players too

2010-11-29T11:59:00.000-08:00

Brent Boyd is a former professional football player. Big tough guy.

In a 1980 pre-season game Mr. Boyd took a serious hit and suffered a concussion. It ended his career and continues to have a very big and bad impact on his life.

Fortunately for Mr. Boyd, the NFL Players Association, when they struck their Collective Bargaining Agreement with the NFL, included a disability plan so that players who became disabled would have some protection against the resulting loss of income.

That hasn’t worked out so well:

Former NFL player Ben Lynch, who once played for the Cal Golden Bears, said he has also been disabled by recurrent head trauma and added that the NFL also did not cover his care.

"When you're playing football, the union tells you there is a safety net waiting to catch you if you fall," Lynch said. "It's not until you smack the ground that you realize that the safety net they told you about doesn't exist."

Mr. Boyd, however, figured he had legal rights, and he went to court to recover his wrongfully-denied disability benefits.

Whereupon he ran into the legal equivalent of the Fearsome Foursome, the Purple People Eaters, and the Steel Curtain all rolled into one: ERISA.

First, the Ninth Circuit observed that, since under ERISA we pretend insurance companies and plan administrators are Oliver Wendell Holmes, and that their motives are pure and pristine, we treat their decisions as if they were edicts from an Oracle on high:

The NFL Plan was established pursuant to collective bargaining and grants to the Retirement Board the full discretion to adjudicate claims and interpret the Plan. We review the Board's decision to deny Boyd's football degenerative disability benefits for an abuse of discretion.

In fact, as the Ninth Circuit added later in the same opinion, denial decisions under ERISA are so bulletproof that “even decisions directly contrary to evidence in the record do not necessarily amount to an abuse of discretion."

The outcome of Mr. Boyd’s suit for disability benefits was as preordained as if the Green Bay Packers were going to play my woefully bad high school football team: “The Retirement Board did not abuse its discretion in concluding that Boyd's disability did not arise from his League football activities.”

The Problem, redux

2010-11-05T16:12:00.001-07:00

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.

Buy a vowel: ER_SA _nsurers l_e, cheat and steal

2010-10-14T09:50:00.000-07:00

Pat Sajek, long-time host of Wheel of Fortune and occasional conservative political commentator, thinks we ought to consider limits on public employees’ ability to vote on ballot initiatives which would directly affect their personal self-interest. He backs up his thoughts with this rationale:

In nearly all private and public endeavors, there are occasions in which it's only fair and correct that a person or group be barred from participating because that party could directly and unevenly benefit from decisions made and policies adopted.

In the small world department, here we have Wheel of Fortune game show host (I once read an interview in an airplane magazine in which Vanna White said her primary occupational requirement was that “You have to know the entire alphabet”; I think she was kidding):

anyway where was I? Oh yes, game show host channels American icon James Madison in Federalist Paper 10: “No man is allowed to be a judge in his own cause, because his interest would certainly bias his judgment, and, not improbably, corrupt his integrity.”

Well , we all know that ERISA insurers regularly make decisions, often ruining -- or ending -- the lives of real people, in matters where they “could directly or unevenly benefit from decisions made.” And yet we treat these biased decisions as if they came from an impartial judge who has no skin in the game. As we’ve discussed previously that doesn’t make any sense.

So to exasperated judges, academic experts, and James Madison, we can now add “game show host” to the ranks of anti-ERISA advocates.

The Problem, redux

2010-10-14T09:29:00.001-07:00

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.

The rising judicial chorus goes to Washington: Senate Finance Committee to consider disability insurers’ conduct under ERISA [UPDATED]

2010-09-24T10:34:00.000-07:00

Next week, the Senate Finance Committee is going to consider the manner in which ERISA affects the behavior of disability insurance companies. Since at least a few Senators will be paying at least some attention to the issue, this is a good time to make some noise. You can learn how to submit your comments for the record in the Senate hearings here.

A few witnesses have already submitted written testimony ahead of time. One of them is United States District Court Senior Judge William M. Acker, Jr., of the Northern District of Alabama. Judge Acker’s testimony focuses on the “discretion” scam, in which insurers confer upon themselves “discretion” in their insurance policies and then use that as a shield to keep judges from reversing their improper claim denials. A few highlights from Judge Acker:

I am not saying that the courts, including the Supreme Court, have not tried to make sense of ERISA, and to make it workable, but in truth, the situation is worse in 2010 than it was in 1998, and getting worse every day.

The language [Congress] chose in 1974, if it had not, over time, been altered or obliterated by the courts, would provide for de novo consideration by a court of all denials of ERISA benefits. ERISA’s Section 502(a)(1)(B) straightforwardly provides that any beneficiary of a plan governed by ERISA can bring a “civil action ... to recover benefits due him under the terms of his plan”. Rule 2 of the Federal Rules of Procedure provides: “There is one form of action – the civil action”. This language recognizes nothing less than an independent consideration by the court, a “trial on the merits”. The procedure concocted by the courts in the years since 1974, now called “judicial review”, based on an examination of the administrative record, while giving deference to the conflicted decision-maker who has already denied the claim, simply does not fit the scheme that Congress contemplated.

ERISA jurisprudence will stay as messed up as it is, unless Congress reworks it. The courts have not rescued ERISA, and cannot be expected to do so. The most important legislative change that I implore you to make is to make it clear that when Congress says “civil action”, as it did in 1974, it means what it said, “civil action” and not “judicial review”.

Here’s Judge Acker’s testimony in its entirety; it is definitely worth a read:

Testimony by Judge William Acker to Senate Finance Committee re ERISA

You'll be able to access the testimony of other witnesses here.

It is never a bad time to do so, but now is a particularly good time to make some noise to your Congressional representatives.

UPDATE (9/28/2010): You can watch the hearing in its entirety here.

Reader’s Corner: A review by an ERISA drone of an ABA book about the legal rights of the mentally disabled

2010-09-14T10:49:00.000-07:00

The American Bar Association, aside from looking out for the interests of lawyers, conducting professional educational get-togethers, and weighing in on the occasional Supreme Court appointee, also publishes a lot of professional literature. They’ve been kind enough to provide me a copy of one such work, entitled Civil Mental Disability Law, Evidence and Testimony, edited by John Parry, J.D., so I can give it a look and review it here for both of you who read this blog. The ABA provided it free of charge, but with no strings about what I might have to say about it, so I consider this to be a pretty impartial overview.

Civil Mental Disability Law to begin with, is a thick book, and it weighs enough that it maxed out my little postage scale here in the office. That’s not because there’s lots of pretty pictures or oversized type. It is comprehensive, and provides an overview at least of a great many areas which can and do impact on the legal rights of the disabled. The topics covered include such things as abuse and neglect; discrimination in employment, housing and public accommodations; social security disability; and of course our favorite law, ERISA, insofar as it impacts things like ERISA-governed disability insurance. A complete table of contents is here.

While the coverage is comprehensive, the other side of that coin is that the discussion of particular topics (if the ERISA section is indicative anyway) is less detailed than it could be if a work were devoted to that topic alone (and they are all deserving of such treatment). The ERISA discussion certainly provides a good basic overview, but for a practitioner it would be a starting point for research; it wouldn’t constitute comprehensive research in itself. Its treatment of what is, in my opinion, the most important “feature” of ERISA – the fact that insurers are immune from any meaningful liability no matter how badly they act – is really a single sentence: “One threshold problem has been the negative impact of federal preemption on state insurance laws that might otherwise protect persons with mental disabilities from discrimination.” That’s certainly true, but it either soft-peddles or fails to mention the overriding problem of the bulletproof insurer: the ERISA problem isn’t limited to discrimination; it permeates the insurer-insured relationship and renders entire insurance policies effectively illusory.

All that said, I don’t consider it a criticism so much as an observation, because the book does not pretend to be anything other than what it is: a comprehensive overview of a variety of topics impacting the legal rights of the mentally disabled. And an overview is quite useful to someone, like me, who starts out being unfamiliar with the subject matter. Civil Mental Disability Law covers the issues which might arise and provides a good succinct introduction to each, and for that, as a lawyer, I’m quite grateful.

The Problem, redux

2010-09-01T19:45:00.001-07:00

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.

Department of Smoking Guns: insurance executive salivates over ERISA’s largess to “insurance” industry

2010-08-10T14:48:00.000-07:00

We’ve talked at some length about how unfair ERISA is and about how it stacks the deck in favor of the “insurance” industry. We’ve heard not only from lawyers but from judges, academics, and “insured” people who’ve had their claims unjustly denied. Now, let’s hear from an insurance executive.

Jeff McCall was a big muckety-muck for Provident, which merged with UNUM, the largest disability “insurance” company on earth, in 1998. In 1995 he authored a “Privileged Provident Internal Memorandum” – need-to-know stuff – about ERISA.

ERISA, recall, was originally intended to protect the interests of employees, not insurance companies. It was supposed to "protect ... the interests of participants in employee benefit plans and their beneficiaries."

As Mr. McCall joyfully wrote, it didn’t exactly work out that way:

A task force has recently been established to promote the identification of policies covered by ERISA and to initiate active measures to get new and existing policies covered by ERISA. The advantages of ERISA coverage in litigious situations are enormous: state law is preempted by federal law, there are no jury trials, there are no compensatory or punitive damages, relief is usually limited to the amount of benefit in question, and claims administrators may receive a deferential standard of review. The economic impact on Provident from having policies covered by ERISA could be significant. As an example, Glenn Felton identified 12 claim situations where we settled for $7.8 million in the aggregate. If these 12 cases had been covered by ERISA, our liability would have been between zero and $0.5 million.

How does this translate into your “insurance” claim being denied? Here’s Mr. McCall again:

While it is our objective to pay all valid claims and deny invalid claims, there are gray areas, and ERISA applicability may influence our course of action.

Oh, it influences their course of action, all right.

Here's a look at Mr. McCall's memorandum:

Insurance executive memo on "benefits" of ERISA

You may think this has no relevance now, in 2010, since Mr. McCall penned his master work in 1995. But it’s still indicative of the “insurance” industry mind set, as discussed in this judicial opinion issued on July 30, 2010, at footnote number 3:

Federal judge describes bad effects of ERISA

The Problem, redux

2010-08-03T16:54:00.001-07:00

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.

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

2010-07-29T14:31:00.000-07:00

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:

...to 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...

Health insurance scammers overlook the low hanging fruit

2010-07-07T11:31:00.000-07:00

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!

The Problem, redux

2010-07-06T09:15:00.001-07:00

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.

A word from an industry insider makes the case against ERISA

2010-06-29T10:37:00.000-07:00

Wendell Potter is a former “insurance” industry bigwig; he worked at Cigna Corporation, most recently as head of corporate communications and as the company's chief corporate spokesman. Before that he was with Humana, a major health “insurer.”

Mr. Potter had the unenviable job of serving as Cigna’s corporate spokesman following its decision to let Nataline Sarkisyan die and its too-little-too-late decision to cover its tracks. That’s no job for someone with a conscience, and Mr. Potter soon thereafter resigned his position. This is worth watching and listening to in full:

Mr. Potter now maintains a blog, and his most recent post is also worth a look. He describes how Health Care Reform did precious little to rein in the “insurance” industry, since they can still lie, cheat and steal with no legal consequence. The whole thing is compelling; here’s a taste:

While the motivation of Congress was to protect employer-sponsored pension plans when it passed the Employee Retirement Income Security Act (ERISA) in 1974, the federal courts over the years have interpreted the law to apply to all employee benefits, including health care benefits. Because it is a federal law, it preempts state laws, meaning that the 130 million Americans enrolled in employer-sponsored ERISA-protected plans cannot sue their insurance companies (or their employers) in state court if they have been denied coverage for a treatment or procedure. The can try to sue in federal court, but even if they succeed, they can only recover the value of the denied treatment or procedure. Federal courts, unlike state courts, cannot require defendants to compensate plaintiffs for pain and suffering or lost wages. The monetary awards to plaintiffs who win their lawsuits are typically so small that few lawyers are willing to represent patients in federal courts.

And...

Insurers and big employers argue that ERISA allows them to offer benefits to their employees more efficiently because it exempts them from what they pejoratively call a patchwork of state regulations. That’s true, but many consumer advocates, health policy experts, jurists and regulators believe that the ERISA preemption of state laws does more harm than good. As the National Association of Insurance Commissioners noted in a comprehensive report on the often harmful consequences of ERISA’s preemption of state laws: “ERISA provides few rights to consumers and, more significantly, it is used as a weapon to block the states’ implementation of health care consumer rights.”

So while Obama’s Patients’ Bill of Rights represents an important step forward, much more reform is needed if the United States is ever to have a health care system that benefits its citizens more than profit-driven health insurance companies.

Kudos to Mr. Potter for his good work.

Let's get scholarly: A good summary of the academic case against ERISA -- "denying benefits is all potential economic gain with no downside risk."

2010-06-14T13:33:00.000-07:00

I don't know Andrew Stumpff, but I sure do like his recent piece which is soon to published in the St. Thomas Law Review and which you can download now from SSRN.

The paper, entitled "Darkness at Noon," is a pretty succinct discussion of ERISA and its malignant effects on American workers. Go read the whole thing; here's a taste (with some gratuitous self-serving links inserted by yours truly):

Imagine a participant whose employer has denied the participant's claim for plan benefits. Together with the Firestone decision, the exhaustion of administrative remedies requirement presents the participant with the following prospect, if she wants to reverse the denial: First the participant must appeal the denial to the employer itself or the the employer's agent, according to procedures and under a deadline prescribed by the employer itself. The employer, let us remind ourselves, is a party whose economic interest is directly adverse to that of the participant, and who has already ruled against her. If the appeal results in continued denial of the claim, the participant will finally gain access to the courts; but the courts will reverse the employer's denial only if the denial was "arbitrary and capricious." All this inferred by courts from -- nowhere expressly provided by -- a statute whose motivation was to protect plan participants.

Meanwhile, with no possibility for consequential or punitive damages, the employer will have had very little disincentive to deny benefits in the first place. If the employer decides not to pay, the worst potential consequence (from the employer's perspective) is that a court might later disagree, in which case all the employer will have to do is pay the claimed amount. From the employer's perspective, denying benefits is all potential economic gain with no downside risk. Furthermore the parties' positions are unequal: The employer is likely in a much stronger position to bear the cost of litigation than the employee (and will also likely have more economic incentive to do so, given the possibility of similar claims by other participants).

In sum, the employer's calculus in deciding whether to pay benefits under an ERISA plan is now roughly the following: On the one hand, pay the benefits. On the other hand, don't, with as consequence only the remote chance the participant will decide to incur the time, cost and effort to exhaust his administrative appeals to the employer or its agent, and then take the case to court; and that the denial will be eventually judicially reversed as "arbitrary and capricious" -- in which case the employer will merely have to pay what it would have owed in any event.

What's striking is not just that this can hardly be viewed as a regime "protective of plan participants." What's striking is that this regime is distinctly less protective that would have been the case under ordinary principles of common law, and that it was established by judges in the name of a law expressly intended to expand participant protection beyond those available under common law.

I think the whole thing stinks even more if you substitute the words "insurance company" for "employer" in the foregoing, which is all too often the case. Then even the meager argument supporting ERISA -- that it encourages employers to create employee benefit plans in the first place -- withers on the vine.

Hat tips to Carol Cachey and Brian King.

The Problem, redux

2010-06-01T10:04:00.001-07:00

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.

An ERISA defense firm lets the cat out of the bag; so-called "fiduciary" ERISA insurers put their bottom line ahead of the interests of ERISA participants and beneficiaries

2010-05-28T13:21:00.000-07:00

McDermott Will & Emery (MWE), among other things, represents ERISA insurers when they get sued. Given the absurd legal rules favoring MWE’s clients, this is roughly as difficult as coaching the Soviet Olympic basketball team.

Last week the Supreme Court issued its decision in Hardt v. Reliance Standard Life Insurance Company, which involved the circumstances under which an ERISA claimant might be eligible for an award on account of his attorney fees.

ERISA is incredibly stingy when it comes to the remedies successful claimant can recover, such that they cannot realistically expect to be made whole for what they’ve lost, never mind recovering any sort of extra award for things like emotional distress, out of pocket losses or punitive damages. So when they have to pay their own attorney out of the meager recovery ERISA allows, that only further diminishes the net compensation they can realize after being defrauded by an ERISA insurer.

The section of ERISA providing for a fee recovery (look for subsection (g)) does not expressly provide, as most other such provisions do, that only a “prevailing party” can recover fees; the judge is allowed to award fees to “either party,” although practically speaking if you lose in court (which is the way to bet) you’re not going to see any fee award. In Hardt the claimant sorta-kinda won, and the court determined Reliance Standard had indeed wrongfully denied Hardt’s disability insurance benefits. You would think that’d be the end of it, but in yet another breathtaking injustice of the sort only ERISA can create the court sent the case back to Reliance Standard to take another look at it. This time (with a pretty good nudge by the judge) Reliance Standard approved the claim and Hardt got the benefits which had been wrongfully withheld.

So Hardt asked for attorney fees, and Reliance Standard argued that all Hardt had been able to do in court was to get a remand, with no actual order that benefits be paid – that Reliance Standard did out of the goodness of its heart of course. The Supremes said Hardt had achieved “some success on the merits,” and that was good enough to allow the court to award fees.

WME represents ERISA insurers, who are supposedly subject to a so-called “fiduciary” duty that they’ll put the interests of ERISA participants and beneficiaries first. So what lesson does WME draw from Hardt? Why, its “fiduciary” clients are going to become more reluctant to award benefits, because if they do they might have to write a check for the claimant’s fees:

The Supreme Court’s decision could also serve as a disincentive for plan administrators to grant benefits voluntarily on remand in the absence of clear language that the reviewing court finds the determination incorrect on the merits.

Yabbut that is not supposed to be any disincentive for these fine upstanding "fiduciaries" who hold the interests of ERISA participants and beneficiaries paramount, is it? I mean if that mattered to them then they’d just be plain old insurance companies who are subject to liability for things like fraud and wrongful death. As it is they’re so squeaky-clean, so pure in their motives, that they’re above the sort of self-interested profit motives which might influence the rest of us mere mortals.

MWE is exactly right, of course: their ERISA insurer clients will be incentivized to screw people to protect their own bottom line. That’s how they roll.

And MWE has simply, if inadvertently, confirmed it.

If they’re going to lie cheat and steal when they consider your insurance claim, you really think they’d be straight about what the law is?

2010-05-11T11:46:00.000-07:00

A few weeks ago the Supreme Court issued its opinion in Conkright v. Frommert, and told us that if an ERISA administrator has phony-baloney discretion, a “single honest mistake” will not cause a loss of that absurd advantage in court and make it so they lose the case if they’re, you know, wrong.

Conkright was, of course, a win for the dark side, since now, despite a screw-up they still get the judge’s thumb on the scale in their favor.

But that wasn’t good enough for them, no sir. So they’ve been running around saying Conkright did way more than it actually did.

A bit of background: The Supreme Court first addressed this “discretion” nonsense in Firestone v. Bruch, in 1989. Then, in the 2008 case of MetLife v. Glenn, the Court talked further about how a court should conduct its analysis when an administrator has that phony-baloney “discretion.”

Glenn set the ground rules. And now in Conkright the Court has said those Glenn ground rules continue to apply even if the administrator commits a “single honest mistake.” The Court could not have been more clear about that; they said in words even an ERISA insurer could understand that, despite the “single honest mistake” which occurred in Conkright, “the lower courts should have applied the standard established in Firestone and Glenn."

The ERISA mob, though, has been arguing that Conkright actually changed “the standard applied in Firestone and Glenn,” and that after Conkright it is now even easier for them to win despite being wrong. Take for example this take on Conkright, published by the ERISA defense firm of Sonnenschein Nath & Rosenthal LLP. According to these guys, “the Supreme Court's reading of Glenn in Conkright may make those courts more reluctant to rely on Glenn to overturn plan administrator decisions in conflict situations.” Not only that, “the same considerations the Supreme Court marshaled to reject a ‘prior wrong decision‘ exception to judicial deference can be -- and may well be -- applied to virtually any other attempt to override a plan administrator decision, making all such decisions harder to overturn.”

Oh hell yes let’s make ERISA claim denials even harder to overturn, since they’ve been so easy to overturn for all these years.

So here’s how it’s supposed to work according to the ERISA mob:

Oops! What the hell, the wrong team won! That’s OK, “single honest mistake,” right? Time for a do-over:

Damn. Still no good. But let’s use our phony-baloney "discretion" to clean up our mess:

There. That’s more like it.

It’s not fair, it’s not just, and it ruins the lives of real innocent people. But we must preserve phony-baloney “discretion” at all costs. Discretion uber alles!

The Problem, redux

2010-05-07T17:01:00.001-07:00

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.

A voice of reason

2010-04-26T13:46:00.000-07:00

Marc Machiz of the BNA Pension and Benefits Blog says it very very well. My hat is off to him.

Supreme Court: ERISA administrators get one free so-called “honest” mistake before losing phony-baloney discretion

2010-04-21T12:58:00.000-07:00

The Supreme Court today issued its opinion in Conkwright v. Frommert. It’s a complicated pension case under ERISA, and the good guys lost. Not that that’s any news.

The impact of this decision, of course, remains to be seen, but summing up the good guys argued that once an ERISA plan administrator screws up a decision, no further phony-baloney “deference” should be given its subsequent decisions on the same subject. The Court, however, said essentially that “one honest mistake” should not be enough to foreclose deferential analysis after the administrator gets its second bite at the apple (you read that right; often an ERISA administrator who screws up a decision doesn't lose the case but gets another chance to deny the claim all over again. More on that in a future post).

This doesn’t worry me all that much because I have seen precious few “honest mistakes” out of ERISA insurers and plenty of fraudulent self-serving lying cheating stealing outrages.

We’ll probably spend a lot of time going forward litigating how “honest” a “mistake” was.

Bring it on.

New York to join the roster of states outlawing phony-baloney discretion?

2010-04-19T17:00:00.000-07:00

Colleague Scott Reimer reports that New York is considering the prohibition of "discretionary" language in insurance policies. These things are poison to any notion of fairness and justice when dealing with an ERISA insurer, and some states are getting with the program already. It certainly can't hurt to see if your state is on the right side of this and to make some noise if it isn't.

The Problem, redux

2010-04-08T11:09:00.001-07:00

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.

No surrender! -- redux

2010-03-17T12:01:00.000-07:00

This blog is all doom and gloom, and for good reason: ERISA stinks! But that ought not stop us from doing what the little the law allows to try to right these wrongs. Therefore, a periodic call to arms seems appropriate. Herewith, consequently, a reprise:

If you’ve spent any time on this blog, and you’ve experienced a denied insurance claim subject to ERISA, you may have developed a sense of hopelessness, not to mention frustration and outrage. All, in my opinion, very appropriate reactions. There’s no use soft-peddling the malignant effects of ERISA – it is very arguably the most unjust law on the books.

But the understandable reactions described above ought not lead to paralysis or inaction. To become passive and to simply yield to insurance company abuse only makes a bad situation worse, for yourself and for others in your unfortunate position.

The calculus ERISA presents to an insurance company goes something like this: we deny 100 claims which probably ought to be approved. Perhaps 20 of those people will even realize we have done something wrong, because we can write bogus denial letters that make it sound like the denial is proper even though we know it probably isn’t. Out of the 20 people who realize they’ve been screwed, perhaps 10 will contact a lawyer, and perhaps five will end up actually taking us to court. And once in court, since we get the benefit of the most absurd stacking of the legal deck known to the law, we can probably count on winning three of those cases, even assuming the claimant is right and we are wrong. So by denying 100 claims wrongfully, thanks to ERISA, we can probably reap the financial benefit of not having to pay 98 of them, and the two we might lose in court, even if we are ordered to pay attorney fees for the other side, won’t come close to canceling out that benefit (remember in no case can consequential or punitive damages be awarded, so we never have to worry about one big loss wiping out the benefit we derive from ripping off those original 100 people).

The only way to upset that calculus even a little bit is for people to stand up for their rights, take the insurers to court in appropriate cases, and make them explain themselves to a judge. The law provides meager rights indeed, but there are lawyers (I am one of them) who can and do go to court and enforce those rights at least. Given the state of the law, it is very, very unlikely we can make you whole, but we can sometimes recover something, and in the process make the insurance companies explain their bad behavior. Gradually, gradually, their fraud and abuse is thereby exposed to the light of day.

So: if you think you’ve been ripped off by your ERISA insurance company, there is every likelihood that you have. Find a lawyer specializing in ERISA claims (this is pretty important because ERISA is arcane and a law unto itself; a generalist is swimming upstream in trying to deal with all the absurd and counterintuitive rules), and see if the lawyer can find a way to enforce what rights the law provides. Take a stand and make them explain themselves!

Of judicial deference and impartial decision-makers: a partial response to the Boston ERISA & Insurance Litigation Blog

2010-03-16T11:51:00.000-07:00

Stephen D. Rosenberg, in his Boston ERISA & Insurance Litigation Blog, offers a very nice counterpoint to many of my rants here about the inequities imposed by ERISA. Mr. Rosenberg’s views are thoughtful, well-reasoned and if not ultimately convincing (says I), certainly colorable. Not to mention he displays significantly more erudition than I typically muster; for example, he does not stoop to conjuring childish pejorative apocryphal names for his targets, as I’ve been known to do. Readers who find themselves agreeing with my positions as expressed here can test their conclusions (and my own) by running them through the filter of Mr. Rosenberg’s opposing viewpoints.

There’s much in Mr. Rosenberg’s blog which merits a thoughtful response, but one old post of his is one I’ve been considering for some time now. In January 2008 he posted about the Fourth Circuit case Evans v. Eaton Corp. Long Term Disability Plan, which he rightfully describes as an “elegant and sustained defense of the granting of discretion to administrators and the application of the arbitrary and capricious standard of review under ERISA.” Mr. Rosenberg considers Evans to be, in effect, a challenge to “critics who complain that the Supreme Court should not have established discretionary authority and the corresponding level of review, explaining, among other things, that such review is instead entirely consistent with the purposes and operation of ERISA, as well as with congressional intent.” He closes with a challenge of his own: “critics of arbitrary and capricious review need to confront and provide a persuasive response to the court’s analysis of these issues, if they are going to criticize, with any credibility, the arbitrary and capricious review standards applied by the courts.”

Well.

First, I should stress that, speaking for myself at least, the biggest outrage has to do with insurance companies – UNUM, MetLife, Prudential, and their ilk – who unilaterally stick so-called “discretionary” language in their policies, effectively conferring discretion on themselves. As I wrote in a brief I submitted to the First Circuit a couple of years ago:

When an ERISA insurer unilaterally includes discretionary language in a policy, it is doing so patently for its own benefit, and for the benefit of no one else. Therefore, at its very inception its discretionary authority is the result of self-serving conduct which is antithetical to any notion of fiduciary responsibility, and certainly to any notion of “higher-than-marketplace quality standards.” ... In effect and almost certainly by design, the insurer is building in an escape hatch calculated to shield its conduct from any but the most deferential judicial scrutiny, facilitating avoidance of the fiduciary responsibilities it is about to undertake. In this way the insurer seeks to undermine one of the statutory safeguards noted by the Glenn court: judicial review of individual claim denials. ... A structural conflict of interest necessarily takes on significant additional weight where the conflicted insurer has demonstrated the foresight to attempt to insulate its machinations from judicial scrutiny by unilaterally including discretionary language in its policy. When the insurer flouts the Smith-Newton-Rutanen-Kramer principles, and soft-peddles the language’s presence in its dealings with the employer, it takes on even more weight: in that case, added to the mix of conflicted behavior is a troubling inscrutability.

What that means in English is that an insurance company which not only confers discretion on itself in its insurance policy, but fails to be up front that it is doing so when it sells the policy to an employer, knows going in that it is going to be up to no good.

So that’s one objection to deferential judicial review. Here's another: as Mr. Rosenberg points out in another post, people who think like me believe ERISA cases “should be treated and resolved in the same manner as any other type of breach of contract or insurance denial (non-ERISA division) case.” We believe, in sum, that if a claim denial is wrong – just wrong – it should be reversed by a court, instead of being upheld under phony-baloney deferential analysis “even at times when it appears to be incorrect.” Real lives are very significantly impacted by these decisions, and if the decision is incorrect it ought to be corrected.

Let’s start looking, however, at what the Evans court has to say. First, it describes the purpose of deferential review, and indeed standards of judicial review in general:

The purpose of standards of review is to focus reviewing courts upon their proper role when passing on the conduct of other decision-makers. Standards of review are thus an elemental expression of judicial restraint, which, in their deferential varieties, safeguard the superior vantage points of those entrusted with primary decisional responsibility. The clear error standard, for example, protects district courts' primacy as triers of fact. [citation omitted]. AEDPA's reasonableness standards protect state courts' authority over state criminal convictions. [citation omitted]. Chevron deference, like the Administrative Procedure Act's arbitrary-and-capricious and substantial evidence standards, protects agencies' authority in carrying out the missions for which they are created. [citations omitted]. And trust law, to which ERISA is so intimately linked, [citation omitted], uses the abuse of discretion standard to protect a fiduciary's decisions concerning the trust funds in his care. See Restatement (Third) of Trusts § 87 (2007).

Here Evans talks about the “superior vantage points” these “other decision-makers” have as a reason to defer to their reasonable decisions: trial courts have an opportunity to hear testimony and observe witness demeanor which appellate courts lack; government agencies develop expertise in the issues they consider from day-to-day which judges, generalists that they necessarily are, lack; and trustees, at least presumably, have more intimate knowledge of the trustor’s wishes, or institutional expertise in managing trust benefits, which similarly gives them an advantage over courts coming to a dispute cold.

But this perceived gap in expertise is not – cannot be – the whole enchilada, since experts can also be crooks. So it’s Sesame Street time. Which of these things is not like the others?

Let’s see: district courts, state courts, government agencies, trustees, ERISA insurance companies. Well the first four are, you know, impartial adjudicators of disputes to which they are not themselves parties – federal and state courts, government agencies, and trustees (who, based on the trustor's designation, exercise discretion to pay out funds provided by a trustor and to which the trustee has no claim for its own benefit).

The fifth, ERISA insurers, are profit-driven entities which realize a direct benefit to their own bottom line every time they deny a claim. And when an ERISA dispute goes to court, under deferential review the impartial court has to give deference to the insurer, who is a party to the very dispute its decision brought about. This is the crux of the concern about ERISA’s deferential review: it’s a requirement that a court have a thumb on the scale in favor not of the decision of another impartial (and presumably expert) decision-maker, but of a party to the very dispute in question.

So the Evans court’s account of the purpose of deferential review – to “focus reviewing courts upon their proper role when passing on the conduct of other decision-makers” – makes sense when that “other decision-maker” is itself impartial and uninterested in the outcome of the underlying dispute. Don’t take my word for it: here’s James Madison, in Federalist Papers number 10:

No man is allowed to be judge in his own cause; because his interest would certainly bias his judgment, and, not improbably, corrupt his judgment.

But what does he know?

We’ll come back to this later, as the Evans court, and Mr. Rosenberg’s blog, offer other observations which deserve a response.

The Problem, redux

2010-03-02T08:16:00.001-08:00

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.

Danny DeVito on why insurance companies lack character

2010-02-24T13:03:00.000-08:00

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.

A Long and Good Life

2010-02-22T11:17:00.000-08:00

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.

The Problem, redux

2010-02-01T13:45:00.001-08:00

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.

The president said “let me know.” OK.

2010-01-28T09:43:00.000-08:00

Here’s President Obama in last night’s SOTU:

But if anyone from either party has a better approach that will bring down premiums, bring down the deficit, cover the uninsured, strengthen Medicare for seniors and stop insurance company abuses, let me know.

OK. Let’s start by fixing ERISA.

1. Bring down premiums. Well, because the insurers are so ethical, and currently set their premiums based on legitimate and valid actuarial risk, fixing ERISA so that they can be held accountable for fraud and wrongful death shouldn’t increase premiums at all. Certainly when setting premiums they don’t take into account the fact they can currently commit fraud and kill people with impunity. I mean, that can’t be part of their business plan, right?

Right?

2. Bring down the deficit. Let’s see. Insurers are held accountable for fraud and wrongful death. Therefore they will not have the same incentive to breach their contracts. Therefore people who are contractually entitled to medical care and disability benefits will actually receive same. Therefore they will be less likely to become public charges through Medicaid and public welfare assistance. Therefore the deficit goes down. And by the way, all this comes at absolutely no cost to the federal government; in fact it will reduce costs because if ERISA is fixed these cases can be litigated in state court where they belong and will no longer be a burden on the federal judiciary.

3. Cover the insured. Well, if we fix ERISA all those uninsured people who only think they have insurance will actually have “insurance.”

4. Strengthen Medicare for seniors. Again, fixing ERISA will certainly not weaken Medicare, and if we effectuate the provision of contractually-required medical care and benefits in a timely manner, people will tend to enter their senior years in better health, instead of burdened by residual medical problems caused by ERISA insurer malfeasance during their working years. So, less strain on Medicare!

5. Stop insurance company abuses. Yup.

So there you go, Mr. President. Let’s fix ERISA so that ERISA insurers have to play by the same rules as everyone else. At a minimum we’ll achieve several of your goals and we’ll incur no governmental cost to do so.

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

2010-01-25T12:56:00.000-08:00

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

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

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

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

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

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

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

***

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

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

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

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

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

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

In ERISAworld, the insurance company wins even when its denial of benefits “appears to be incorrect”

2010-01-05T12:10:00.000-08:00

Verla Hancock had an ERISA-governed insurance policy, which among other things provided coverage for accidental death. If an accident (as opposed to an illness, say, or a suicide) caused Ms. Hancock’s death, then the insurance company, MetLife, would pay death benefits to her designated beneficiary. Verla had named her daughter, Terri, as her beneficiary.

Terri found Verla’s body on the floor of her bathroom when she checked on her after she had not heard from her for several days. Verla had an Oxycontin prescription, but the medical examiner determined there was “no evidence of excessive amounts of Oxycontin or other intoxicants” in the toxicology results. Nor did the autopsy find any “evidence of natural disease, injury or intoxication sufficient to explain death.” The investigating detective said “it looked like [Verla] slipped, fell, and hit her head.” Terri also submitted an investigative report in support of her claim for death benefits from Verla’s accidental death:

This time she submitted an investigative report prepared by MRA Forensic Sciences. MRA had conducted a slip-meter test on tiles similar to those in Verla Hancock’s bathroom and found that they were slippery when wet. MRA listed factors that made a slip-and-fall accident likely, including Verla Hancock’s medical problems, history of falls, and a potentially wet floor (although it provided no evidence that the tiles were wet at the time of death). The report then stated: “[I]t cannot be concluded that [Verla Hancock] did not die of accidental causes. In fact, based upon the available information, there was sufficient evidence to suggest that she was prone to falling down and that she probably did fall down in the bathroom.”

So how did Verla meet her demise? She slipped and fell in her bathroom. It was an accident.

Duh.

MetLife was, of course, not convinced. It decided the significant evidence supporting a conclusion of accidental death was “conjecture,” and concluded Terri just didn’t prove to its satisfaction that the death was accidental, as opposed to, say, Verla’s taking her own life by slamming her head as hard as she could on her toilet.

MetLife, of course, had granted itself discretion in its accidental death policy, so in order to win in court Terri would have to prove its denial of the claim was not just incorrect but absurd, ridiculous, unintelligible. The United States Tenth Circuit Court of Appeals said as much, in unmistakable language:

To give an insurer discretion is to uphold its decision even at times when it appears to be incorrect.

This goes on, all the time, in courtrooms across the United States. It has been preserved in current health reform proposals.

It is unconscionable.

When insurance companies are right, they should win in court.

When they are wrong, they should lose.

But they don’t.

(Thanks to Carol Cachey for the pointer).

The Problem, redux

2010-01-01T15:09:00.000-08:00

Happy New Year and here's hoping it's a healthy, prosperous and ERISA-free year. The negotiations over health insurance reform are not quite over so we may yet be able to agitate for change in this most unjust of laws. In the meantime...

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.

Seventh Circuit: “Discretion” means the insurance company can shuck and jive

2009-12-15T13:44:00.000-08:00

Ghandi Gutta is an accomplished physician. Unfortunately for him, he suffered from a variety of ailments, which kept him from being able to work as a physician. As the United States Seventh Circuit Court of Appeals described it, Dr. Gutta’s ailments included:

type I diabetes, macular degeneration, retina artery aneurism in his left eye with a residual blind spot, dislocation of the left thumb, degenerative arthritis in both wrists, ulnar palsy of the left arm and hand, rotator cuff injury in the left shoulder, and degenerative arthritis in the right AC joint.

Other than that he was fine.

Dr. Gutta filed a disability claim under his ERISA-governed insurance policy, and after paying for a brief time Standard Insurance Company terminated his benefits; Dr. Gutta was thereby forced to roll the dice with his ERISA lawsuit. The evidence in the claim file (which is of course all he got to introduce at trial) included “the testimony of no less than twelve doctors, as well as a few other people.” Standard, meanwhile, had decided that Dr. Gutta was able to work as a medical director or assistant medical director, so no benefits for him.

In court, of course, Standard argued that it had conferred “discretion” upon itself in its insurance policy, and that therefore its termination of Dr. Gutta’s disability benefits could be overturned only if it was an abuse of discretion, never mind whether it was correct. The Seventh Circuit agreed, and described the “abuse of discretion” standard as allowing Standard to “shape the application, interpretation, and content of the rules in each case.”

Guess who won?

This is remarkable, or would be anywhere but ERISAworld. The rules by which an insurance company decides which claims to pay are not shaped by the terms of the insurance policy, and God knows the law doesn’t intrude on its unfettered ability to lie cheat and steal. No, an insurance company can decide for itself, in each case, what the “application, interpretation and content of the rules” are.

And our Congressional representatives just allow this to fester.

With the Public Option gutted, fix ERISA to keep insurers honest

2009-12-09T14:38:00.000-08:00

[Updated December 10, 2009]

It appears the public option aspect of health insurance reform has been eliminated or, at the least, has morphed into a feeble remnant of its original incarnation.

Remember the rationale for having a public option was to keep insurers honest. President Obama said explicitly that he didn’t support the public option in order to eliminate the insurance industry – he just wants to hold them accountable.

We could go a long way in the direction of accomplishing exactly that – with utterly no impact on the public coffers – by fixing the ERISA problem.

The current proposal in the senate, so far as we know at any rate, would allow state law claims and remedies with respect to coverage purchased through the contemplated Health Insurance Exchange. Individual private policies already involve state law and not ERISA. That leaves employment-based insurance, which is by far the most common type, and which is governed by ERISA -- imposing on the insurer no meaningful accountability at all.

So the natural alternative to the now-apparently-moribund public option is to address the malignant effects ERISA has on the behavior of insurance companies.

President Obama, Congress, now is the time to expose the health insurance industry to some real accountability, to require them to make whole the innocent insureds whom they defraud and kill. Do something about ERISA, and we’ll achieve some actual reform.

Update: The public option indeed appears to be dead. House Speaker Nancy Pelosi says the House would still likely vote for an alternative proposal which accomplishes certain broad goals, and specifically relating to the late lamented public option says "We believe, we in the House believe, that the public option is the best way to hold insurance companies honest -- to keep them honest and also to increase competition. If there is a better way, put it on the table."

There is a better way: fix ERISA.

The Problem, redux

2009-12-01T09:39:00.000-08:00

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.

Claim denied: the $43,364.27 battery

2009-11-24T11:01:00.000-08:00

Paige Riley has a serious medical condition: gastroparesis. The stomach cannot empty itself, causing nausea, vomiting and pain. Fortunately for Paige, her husband’s employer provided a very attractive insurance plan, so the installation of an Enterra – a device implanted under her skin which ameliorated her condition by prompting the stomach to do its job – was covered back in 2005. And when its batteries needed to be replaced in 2007 – which of course also required surgery since the device was under her skin – that was covered too.

Earlier this year, another operation became necessary to replace the fading batteries. As Forbes.com reports, Blue Cross & Blue Shield of Mississippi, the plan administrator for the insurance plan, decided Enterra was experimental and refused to cover the $43,364.27 bill to install new batteries. So Ms. Riley had to proceed to court.

Now guess which law governs her case. That’s right - ERISA. So her chances of prevailing in court and getting the procedure covered are drastically reduced because ERISA makes it exceedingly difficult to overturn an insurance company’s denial of your health insurance claim. And of course if you do manage to get it overturned the remedies you recover are very, very stingy. Indeed these factors do a lot to explain why an insurer will deny coverage to replace batteries in a device which had already been approved.

So Ms. Riley was left with the choice of going ahead with a dead Enterra device implanted under her skin, and living with the symptoms of gastroparesis, or scrambling to come up with $43,364.27 out of her own pocket.

I don’t know what to call that sort of arrangement, but it certainly isn’t “insurance.”

“Independent” medical exams and “reasonable” grounds for denying your claim

2009-11-18T12:53:00.000-08:00

As we’ve seen when an insurance company has managed to grant itself “discretion” it gets the benefit of the most absurd judicial deference known to the law. The courts make no bones about it: a decision to deny benefits, even if the court agrees it is wrong, will nonetheless be upheld so long as the court concludes it was “reasonable” (not reasonable, “reasonable”).

So what does it take for a wrong decision to be “reasonable”? One way is for the insurance company to say hey, it wasn’t our decision, we hired an independent doctor to review all the files and we just abided by this fine fellow’s impartial and fair opinion. And the judge says, well, they did have someone with “M.D.” after his name say the claim was bogus, and who am I, a mere federal district court judge, to disagree with such a learned and considered opinion? (and the champagne and caviar doesn't affect my decision at all!).

Of course, as in all things ERISA, the books are cooked here. These so-called “independent” medical examiners are very, very frequently beholden to the insurance companies who hire them and pay the freight. These doctors are very handsomely contemplated for their time, and that gravy train stops abruptly if the insurance company sees they are issuing too many opinions which don't allow the insurer to deny a claim. So to all too many of these “independent” doctors, no one is ever disabled, and no medical treatment ever qualifies as “medically necessary.”

My colleague Michael Quiat, on his excellent disability law blawg, addressed this issue recently. You should read the whole thing, but here’s a taste:

To construct the façade of “impartiality”, insurance companies hire doctor “agencies” which hire physicians to do what are facetiously called Independent Medical Examinations, purportedly because the insurance company wants to catch malingerers. These doctor agencies scout out MDs, many of whom do not practice medicine as a vocation, but stick strictly to IME exams. These exams provide most, if not all of their income.

These physicians are paid to be highly skeptical of disability claim and claimants. Most of their exams are based on the written reports of claimants’ doctors, but yet they are supposedly able to determine that a claimant is not in pain or restricted in movement or otherwise afflicted, even though they never see the claimant!

Mike’s post includes a link to a recent article in the Los Angeles Daily Journal about this; it is worth your time to take a look at that too.

The U.S. Supreme Court, in a case called Black & Decker Disability Plan v. Nord, echoed the same concerns:

As compared to consultants retained by a plan, it may be true that treating physicians, as a rule, have a greater opportunity to know and observe the patient as an individual. Nor do we question the Court of Appeals' concern that physicians repeatedly retained by benefits plans may have an "incentive to make a finding of `not disabled' in order to save their employers money and to preserve their own consulting arrangements."

Not that that ended up meaning anything; the court in Nord decided that the opinions of treating physicians deserved no particular consideration, and it was perfectly OK for an insurance company to credit the views of its paid ~~whores~~ doctors over the views of the claimant’s treating physicians.

So that’s one way judges uphold decisions they know to be wrong, because the decisions are ~~reasonable~~ “reasonable.”

More ERISA talk on the Nicole Sandler show

2009-11-18T12:19:00.000-08:00

My colleague Jeff Metzger appeared on Air America’s Nicole Sandler show last week. Jeff knows his stuff and well explained the problems ERISA causes and how it ruins lives. The audio is here.

HR 3962 preserves ERISA’s malignant scheme

2009-11-11T12:29:00.000-08:00

Mark Hall of the O’Neill Institute posted the other day to comment that the “health reform process is ignoring the hash that Congress and the courts have made of ERISA’s pre-emption of state tort suits against health insurers.” Mr. Hall, of course, is precisely correct about that, as he is when he adds “personal injuries caused by insurance claims denials cannot be adequately redressed either under state tort law or federal law, due to ERISA’s complete pre-emption of the former, and its stingy remedies for personal injury to the latter.” No fooling.

Mr. Hall’s larger point is that the health “reform” bill passed by the House of Representatives over the weekend, HR 3962, does nothing to address ERISA’s malignant effects. Section 251 of the bill expressly provides:

Nothing in paragraphs (1) or (2) shall be construed as affecting the application of section 514 of the Employee Retirement Income Security Act of 1974.

(You can find the full text of the bill here).

Section 514 of ERISA, in turn, is the provision which preempts state law and leaves insurance company victims to the tender mercies of the federal courts and the ridiculously stingy remedies ERISA itself has been interpreted to provide.

Now Section 251 in general is the part of HR 3962 which discusses how the bill would affect the applicability of other laws. It says:

In the case of health insurance coverage not offered through the Health Insurance Exchange (whether or not offered in connection with an employment-based health plan), and in the case of employment-based health plans, the requirements of this title do not supercede any requirements applicable under titles XXII and XXVII of the Public Health Service Act, parts 6 and 7 of subtitle B of title I of the Employee Retirement Income Security Act of 1974, or State law, except insofar as such requirements prevent the application of a requirement of this division, as determined by the Commissioner.

OK that’s a bunch of legal mumbo jumbo, but it essentially talks about other laws which survive the enactment of HR 3962 (it designates other laws which are not to be “superceded”). And then comes the part about ERISA, which says essentially that, in the case of "employment-based health plans,“ don’t you dare think for one minute that the insurance industry will lose their licence to lie, cheat, steal and kill.

Mr. Hall discusses another part of HR 3962, which says that insurance purchased through the contemplated “Health Insurance Exchange” will not be subject to ERISA, or at least says “individual rights and remedies under State law shall apply.” Insurance purchased through the Exchange, however, won’t include the “employment-based health plans” which will continue to be subject to ERISA and its various malignancies. At section 100 HR 3962 defines “employment-based health plans” by referring the reader to (what else?) ERISA’s definition of “group health plans,” specifically ERISA section 733(a)(1), where we finally find the actual definition: it’s an “employee welfare benefit plan to the extent that the plan provides medical care.” Elswhere ERISA defines “employee welfare benefit plan” as any “plan, fund or program ... established or maintained by an employer...”

Ah the hell with it. I’m a lawyer and I'm paid to wade through this stuff, and I won’t inflict any more of on the reader here. Suffice it to say that Mr. Hall’s concerns are well founded, and that ERISA’s crappy effects will easily survive the enactment of HR 3962 in its present form.

There may yet be time to impact this. The Senate still needs to pass something, and then there has to be reconciliation in a conference committee. So please don’t stop making noise.

Kudos to Congressman Shadegg and his ERISA-reform efforts

2009-11-05T12:49:00.000-08:00

Yesterday Congressman John Shadegg introduced to the press Florence Corcoran, whose baby was killed by an ERISA insurance company. Congressman Shadegg has been on the right side of this issue for a while now and deserves kudos for championing the cause in the halls of Congress. While it is clear his immediate motivation is to raise the issue to oppose current health care reform efforts on the Democratic side, the fact is he’s correct that those efforts will be an exercise in futility if ERISA is left untouched. Here’s some of yesterday’s press conference:

Now of course, the insurance industry will tell you that if you are going to hold them accountable for things like fraud and wrongful death, they just can’t do business on those terms. We’ve heard it before, and now we’ve heard it again. Here’s the response to Congressman Shadegg from ERIC, the ERISA Industry Committee:

The ERISA Industry Committee (ERIC), the Washington, D.C.-based trade association representing America's major employers, strongly opposes a proposal by Representative John Shadegg (R-AZ) to subject employers' Employee Retirement Income Security Act (ERISA) plans to a patchwork quilt of state remedies and laws. Representative Shadegg earlier today held a press conference where he called on Congress to eliminate ERISA's preemption clause and allow state-based remedies.

In response to Shadegg's comments, ERIC President Mark Ugoretz warned that, "if Congress were to allow state litigation of ERISA plans, employers potentially could face thousands of lawsuits, under dozens of legal frameworks, resulting in a litigation nightmare.

Healthcare is a national not a state-by-state issue and must be dealt with in a nationally uniform system -- anything less results in healthcare chaos. Employer-provided healthcare coverage cannot survive if it is subjected to a patchwork of enforcement, remedies, and compliance rules by 50 states and a kind of product liability litigation. For the vast majority of employers, health care coverage is not a product, it is a benefit offered to employees. Employers, many of whom are struggling to offer health coverage to their employees, cannot provide health care coverage if they are subject to a patchwork of rules and multiple lawsuits in state courts."

***

Ugoretz further warned that, "any change in the law relating to ERISA-governed plans would result in a retreat from offering healthcare coverage for millions of Americans who rely on ERISA-governed plans for their health care needs. Such a proposal would drive up already escalating health care costs that ultimately will be passed on to employees. That new burden would amount to a 'litigation tax' on all of an employer's employees to pay for lawsuits initiated by a few."

So there you have it. As long as we can commit fraud with utterly no consequences, as long as we can kill people with utterly no consequences, as long as we can offer insurance but deliver fake, illusory, empty promises, we’re happy to do business with you. Otherwise, no sale.

Congressman Shadegg, as well as these other members of Congress who appeared at his press conference in support, deserve kudos: Senator Tom Coburn; Representative Jack Kingston; Representative Phil Roe; Representative Lee Terry; Representative Louie Gohmert; Representative Phil Gingrey; Representative Sue Myrick; Representative Steve King; Representative Mark Souder; Representative Todd Akin; Representative Jean Schmidt; Representative Paul Broun; Representative Lynn Westmoreland; and Representative Jim Jordan.

These folks are all Republicans.

I’m a Democrat and on this issue I profoundly disagree with my party leaders and their silence.

I think I’ll sit down and write a few letters.

The Problem, redux

2009-11-03T09:34:00.001-08:00

On the first day of each month (OK, 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.

Fraud and corruption as cost control

2009-10-30T12:31:00.000-07:00

The folks at the Hastings Center Health Care Cost Monitor provide commentary and opinion on cost control as part of health care reform. Nothing wrong with that, of course; it’s a critically important part of the current debate over health insurance reform.

The other day the Hastings Center site featured a post by Jacqueline R. Fox, a professor at the University of South Carolina School of Law, entitled Will Health Care Reform Increase Litigation Over Denied Claims? Professor Fox conveyed a legitimate concern, if you ask me, about the effect of proposed reforms on health care costs, but when she turns to whether insurance companies should be accountable for wrongfully denying claims she demonstrates the depth of the ERISA problem.

Professor Fox posits that litigation over denied benefits claims could ramp up for two reasons:

First of all, removing pre-existing conditions and other limitations to coverage in the private market will make it easier for people currently without coverage to get it. In addition, controlling the cost of policies will make it easier for people to keep coverage. Coupled with proposed mandates that would require people to purchase insurance, it is logical to envision millions of people entering the state-regulated private insurance market, getting consistent insurance coverage for the first time.

Note her concern here is with the “state-regulated private insurance market”; that is to say she is not talking about employment-based policies currently covering the vast majority of us.

It’s where Professor Fox contrasts the situation regarding the “private market” with ERISAworld that she illuminates the Problem:

No damages are allowed to be awarded for an ERISA claim beyond the cost of the medical care that was denied, even if real, measurable damages occur and even if state laws would allow for these damages to be recovered.
***
By protecting employer-sponsored health insurance plans from liability for their benefit decisions, ERISA allows plans to adopt far more aggressive cost-saving approaches in their decisions than they could possibly risk were they subject to liability. In state court cases for wrongful denials that are not subject to ERISA, jury awards can reach tens of millions of dollars.

The legal analysis in benefits decisions is based on the language of the benefits contracts. If excessive cost was explicitly allowed as a basis for coverage decisions, liability would not be a large-scale problem. However, these contracts do not allow explicit cost-based rationing decisions to be made by the plan administrator and instead rely on a more amorphous “medical necessity” standard for their decisions.

Well, I do have a few quibbles with what I view as Professor Fox’s euphemisms. Allowing insurance companies “to adopt far more aggressive cost-saving approaches in their decisions than they could possibly risk were they subject to liability” is another way of saying “allowing insurance companies to fraudulently deny claims they don’t want to pay because of concerns over their bottom line.” And saying that insurers, in the absence of “explicit cost-based rationing” language in their insurance policies, resort to “a more amorphous 'medical necessity' standard for their decisions” amounts to an observation that insurers commit fraud to save themselves money: they can’t deny the claim for the reason they really want to, so they just make something up and call it a “medical necessity” decision.

Professor Fox certainly has a legitimate concern. We do no one any favors by pricing health care out of reach. But “cost savings” ought not be allowed to divert us from our attention to the Problem. After all, we could certainly help out Detroit if we allowed them to sell a car and then get away with not actually delivering, you know, the car. Same thing applies to ERISA: it’s a false economy to pay less for something when that something isn’t really delivered. ERISA insurers sell insurance but deliver empty and illusory promises. And Professor Fox’s argument makes that very point.

Professor Fox herself observes:

It is not at all clear that the ERISA pre-emption is a good way of controlling health care costs, either from an ethical standpoint or in terms of guaranteeing the most rational use of scarce resources. However, it is one of the few ways of controlling costs that we currently have.

No it is not at all clear. If the insurance industry needs immunity from legal liability for fraud in order to keep costs under control, then it is time for them to go. And then it'll be time for us to figure out a way to have health care services delivered by an entity that does not need to be able to commit fraud with impunity if it is to stay in business.

The states fight back – a little

2009-10-28T09:12:00.000-07:00

As we’ve discussed previously one of the biggest problems with ERISA is that it prevents the states from providing suitable protections for people who have “insurance” through their employers.

The ERISA prohibition of state regulation is not across-the-board, however. ERISA does preserve some state regulatory authority (in fact a lot of us think it was intended to preserve all state authority when it came to insurance companies, but that got mucked up in the judicial interpretation process over the years). One of the recurring battles in ERISAworld is whether some particular state regulation can survive ERISA and actually, you know, regulate insurers.

Now, in the most important area – the consequences an insurance company faces if it defrauds you or kills you – the states remain powerless to improve on ERISA’s ridiculously stingy approach. But the states do retain some ability to regulate the content of insurance policies sold within their borders, and that’s where a lot of these arguments arise.

Yesterday the Ninth Circuit issued Standard Insurance Company v. Morrison, a case about whether Montana could prohibit so-called “discretionary clauses” in insurance policies. These clauses are what insurance companies use to shield themselves from any but the most cursory and deferential judicial scrutiny of their benefits denials, and to pretend they are something they are not, like courts or administrative agencies. Yesterday the Ninth Circuit said Montana could indeed prohibit these provisions.

As we’ve discussed previously "discretionary authority," which leads to the weak judicial scrutiny the insurers are so fond of, is supposed to come from someone who sets up a trust, and wants the trustee to have such powers. It is not something the trustee just unilaterally confers on itself – except of course in ERISAworld where insurance companies stick this language into the insurance policies for their own benefit, and without so much as checking with the putative “trustor,” i.e. the employer purchasing the policy for its employees.

If you want some corroboration about how pernicious these provisions are, just consider what Montana and some other states have done to try and prohibit them. Montana’s Insurance Commissioner banned them (and the Ninth Circuit said yesterday he had the authority to do so) by invoking his authority to disapprove “any inconsistent, ambiguous or misleading clauses or exceptions and conditions which deceptively affect the risk purported to be assumed in the general coverage of the contract” (you can find that in the trial court decision in the Morrison case, which is at 537 F.Supp.2d 1142 (D.Montana 2008)), a long way of saying he can disapprove language which renders the coverage supposedly provided by the policy a big fat lie.

Montana is not alone. California, for example, has disapproved “grants of administrative discretion in insurance policies and ERISA plan documents” because they “render insurance contracts ‘illusory’ and ‘unsound insurance,’” (Mitchell v. Aetna Life Ins. Co., 359 F.Supp.2d 880 (C.D.Cal. 2005)) and so has Michigan, concluding discretionary clauses “unreasonably reduce the risk purported to be assumed in the general coverage of the policy.” (American Council of Life Insurers v. Watters, 536 F.Supp.2d 811 (W.D.Mich. 2008)). All in all, as of now sixteen states have taken similar actions.

The National Association of Insurance Commissioners, a, um, national association of insurance commissioners of the various states, has also weighed in, issuing the Discretionary Clauses Model Act, which it urges the states to adopt, in 2002. The “NAIC membership believed that discretionary clauses were inconsistent with basic consumer rights," (page 9 of the linked brief) and issued the Model Act “to assure that health insurance benefits and disability income protection coverage are contractually guaranteed, and to avoid the conflict of interest that occurs when the carrier responsible for providing benefits has discretionary authority to decide what benefits are due” (page 11).

The insurance industry, of course, is not willing to give up their little cash cow without a fight. Let’s see what MetLife, a big ERISA insurer, has come up with – if the states can ban discretionary clauses in insurance policies, we’ll just stick them somewhere else:

To date no court has held that state insurance laws can regulate the employer’s plan documents, like the federally mandated summary plan description (SPD) or master plan document, if it has one. ... As a result of the battle over discretionary clauses, an ERISA plan sponsor who wants plan determinations to receive deferential judicial review may be unable to purchase an insurance policy containing a discretionary clause. ... Plan sponsors who want deferential judicial review should include a discretionary clause in their SPDs or other formal plan documents.

Wanna bet MetLife won’t volunteer to draft an employer’s SPD? I’ll take that bet.

The upshot of all this is that the states, as of now, do retain some ability to ameliorate the absurd effects of these pernicious “discretionary” provisions. That may not last forever; as we’ve seen the insurance industry will fight tooth and nail not to lose this unfair advantage. If your state has not yet addressed this problem then it’s time to call your legislators and get them on the stick.

ERISA: not always bad

2009-10-23T12:21:00.000-07:00

In the wake of today's good news that Ian Pearl's coverage has been reinstated, it seems a good time to admit that not all things ERISA are all that terrible.

So lest I be misunderstood I want to make it clear that Erisa Nakayama is not a crook and does not belong behind bars (assuming of course she does not work for an ERISA insurance company).

I do think she should have a word with her parents about that name, though.

Labor Department official: "tragedy" to enact health reform and leave ERISA alone

2009-10-21T08:06:00.000-07:00

Paul Secunda blogs at Workplace Prof Blog about a talk given by Phyllis Borzi, who heads the Employee Benefit Security Administration. She knows whereof she speaks: she's in the ERISA enforcement business, and her agency's mission is to "deter and correct violations of the relevant statutes through strong administrative, civil and criminal enforcement efforts to ensure workers receive promised benefits."

Phyllis Borzi got it right:

Borzi said it would it a tragedy if Congress passed health care reform legislation without addressing remedies available to plan participants under ERISA.

So did Professor Secunda:

I certainly agree with Sec. Borzi that the current state of ERISA remedies is a tragedy and that health care reform efforts need to consider addressing this remedial issue. I also agree that many employers and management-side attorneys have a knee-jerk reaction to defend that system because of favorable treatment under ERISA's remedial and preemption provisions.

It is time for Congress to finally provide a meaningful remedy for ERISA violations.

True that.

Another “insured” person cheated out of “insurance” by ERISA; UPDATE: Guardian caves in response to public pressure

2009-10-16T15:23:00.000-07:00

Ian Pearl, since birth, has suffered from muscular dystrophy. He is now 37 years old, and is confined to a wheelchair and hooked to a breathing tube.

Fortunately for Ian, he had “insurance” through the ERISA plan offered by his father’s company. So while his health was terrible, he at least would have access to adequate care and his family could avoid going bankrupt from medical bills.

Not so fast. His insurance carrier, Guardian Life Insurance Company, decided it was just too expensive to live up to its contractual obligations to cover the care required by Ian and others like him.

So Guardian just pulled the plug. According to the Washington Times:

Legally barred from discriminating against individuals who submit large claims, the New York-based insurer simply canceled lines of coverage altogether in entire states to avoid paying high-cost claims like Mr. Pearl's.

At least Guardian was compassionate about condemning Ian to a life of inadequate medical care for his debilitating condition. You can just hear them choking back their tears:

In an e-mail to four other Guardian executives entered into evidence in the Pearls' suit, company Vice President Tim Birely discussed how the company could "eliminate this entire block to get rid of the few dogs."

Now how on earth is this legal? Simple:

The judge found that the company had not violated the Employee Retirement Income Security Act (ERISA), because it canceled entire policy lines.

Sorry, Ian. To Guardian, you’re just one of the “few dogs” they need to dispense with.

UPDATE:

Daylight,as they say, is the best disinfectant. In response to public pressure and lots of media coverage and widespread outrage, Guardian has caved and reinstated Mr. Pearl's coverage.

Now about all those people who didn't make the headlines...

No surrender! -- redux

2009-10-13T10:49:00.000-07:00

This blog is all doom and gloom, and for good reason: ERISA stinks! But that ought not stop us from doing what the little the law allows to try to right these wrongs. Therefore, a periodic call to arms seems appropriate. Herewith, consequently, a reprise:

If you’ve spent any time on this blawg, and you’ve experienced a denied insurance claim subject to ERISA, you may have developed a sense of hopelessness, not to mention frustration and outrage. All, in my opinion, very appropriate reactions. There’s no use soft-peddling the malignant effects of ERISA – it is very arguably the most unjust law on the books.

But the understandable reactions described above ought not lead to paralysis or inaction. To become passive and to simply yield to insurance company abuse only makes a bad situation worse, for yourself and for others in your unfortunate position.

The calculus ERISA presents to an insurance company goes something like this: we deny 100 claims which probably ought to be approved. Perhaps 20 of those people will even realize we have done something wrong, because we can write bogus denial letters that make it sound like the denial is proper even though we know it probably isn’t. Out of the 20 people who realize they’ve been screwed, perhaps 10 will contact a lawyer, and perhaps five will end up actually taking us to court. And once in court, since we get the benefit of the most absurd stacking of the legal deck known to the law, we can probably count on winning three of those cases, even assuming the claimant is right and we are wrong. So by denying 100 claims wrongfully, thanks to ERISA, we can probably reap the financial benefit of not having to pay 98 of them, and the two we might lose in court, even if we are ordered to pay attorney fees for the other side, won’t come close to canceling out that benefit (remember in no case can consequential or punitive damages be awarded, so we never have to worry about one big loss wiping out the benefit we derive from ripping off those original 100 people).

The only way to upset that calculus even a little bit is for people to stand up for their rights, take the insurers to court in appropriate cases, and make them explain themselves to a judge. The law provides meager rights indeed, but there are lawyers (I am one of them) who can and do go to court and enforce those rights at least. Given the state of the law, it is very, very unlikely we can make you whole, but we can often recover something, and in the process make the insurance companies explain their bad behavior. Gradually, gradually, their fraud and abuse is thereby exposed to the light of day.

So: if you think you’ve been ripped off by your ERISA insurance company, there is every likelihood that you have. Find a lawyer specializing in ERISA claims (this is pretty important because ERISA is arcane and a law unto itself; a generalist is swimming upstream in trying to deal with all the absurd and counterintuitive rules), and see if the lawyer can find a way to enforce what rights the law provides. Take a stand and make them explain themselves!

ERISA to Insurance Companies: It’s OK to kill someone’s daughter, just don’t flip them off

2009-10-07T16:20:00.000-07:00

Cigna Corporation, an ERISA health insurer, killed Nataline Sarkisyan in December 2007, denying a liver transplant on the pretext it was “experimental” (which is insurance company code for “expensive”; after all paying for the transplant would reduce its profits).

Nataline’s parents sued Cigna for killing their daughter. Nataline’s mom, Hilda, also appeared at Cigna’s Phildelphia headquarters in 2008, and said “You guys killed my daughter. I want an apology.”

What she got instead is described in an article in today’s Los Angeles Times:

Cigna employees, looking down into the atrium lobby from a balcony above, began heckling her, she said, with one of them giving her “the finger.” Sarkisyan walked out, stunned and hurt.

“They showed me their true colors,” she said. “Shame on them.”

Meanwhile, thanks to ERISA, a Los Angeles judge had to dismiss their wrongful death case against Cigna, because ERISA provides the Cignas of the world immunity from liability for killing people.

Cigna, of course, took this as some sort of endorsement of its decision to let Nataline die:

Cigna said the dismissal of the wrongful-death case in April showed that the court “agreed with our position that the Sarkisyans’ claims regarding Cigna’s decision making were without merit.”

But as the Times correctly observed

In fact, the court did not consider the merits of the family’s wrongful-death claims. Instead, it decided those claims could not be heard.

The insurance companies’ flack, one Robert Zirkelbach, a spokesman for America’s Health Insurance Plans, defended the outcome, saying that to hold insurance companies accountable for killing people will “bankrupt these plans, and employers would no longer be able to offer coverage.”

That makes perfect sense. How can you be expected to offer your services at a reasonable price if the courts are going to nitpick about you killing people?

The Sarkisyans did get one bit of good news, though. They get to sue Cigna over its employees flipping off Ms. Sarkisyan: the court “said the Sarkisyans could pursue damages for any emotional distress caused by the Philadelphia incident.”

So they have that going for them.

Memo to insurance companies in ERISAworld: go ahead and kill people. Just keep your middle finger to yourself.

UPDATE: Film at 11:

Insurance Companies and Federal Judges Getting Together to Party and Scheme: What Could Go Wrong?

2009-10-06T12:39:00.000-07:00

As we have seen there are judges who are becoming fed up with ERISA and its malignant effects on the behavior of insurance companies and the ability of insureds to enforce the promises made in insurance policies.

These judges, of course, do not make up the entirety of the federal judiciary. There are other judges who actually sit down and party and break bread with insurance companies.

Take, for example, the upcoming ERISA Litigation Conference to be presented by the American Conference Institute. This shindig will be raging at the ritzy Helmsley Park Lane Hotel in NYC on October 19 and 20.

What could possibly be wrong with that? Well, consider for one thing that when you have a claim denied and you ask for reconsideration from an insurance company, they are (supposedly) required by law to undertake a “full and fair” review of the claim, and conduct it impartially in accordance with their so-called fiduciary duties. Among these fiduciary duties are that they are required to discharge their duties “solely in the interest of the participants and beneficiaries.”

So what are these insurance companies (and plan sponsors and service providers) and federal judges going to be talking about over their caviar and bubbly? How about this: “Using the claims review process to set up, control and strengthen the defense”? (page 1 of the ACI brochure linked above) Or “Anticipating claims when making the decision and preparing to defend it before the decision is made”? (Page 3 of the linked brochure).

See, guys, when you are undertaking a review of a denied claim, and you are supposed to do that "solely in the interests of the participants and beneficiaries,” you are not supposed to be thinking about scrubbing the claim file so as to “set up, control and strengthen the defense.” You are not supposed to be “anticipating claims” or “preparing to defend it before the decision is made” since, of course, you approach your job with an open and fair mind and you don’t even know you’re going to deny the claim until you have assembled all the facts and applied your impartial, professional expertise to the decision.

Right?

Right?

And of course while the insurers are discussing how to use the claims review process to prepare for the defense of a future lawsuit instead of applying it to the "sole interest of participants and beneficiaries,” they’ll be doing so while rubbing elbows with “21 federal judges from district courts located in 8 circuits.” (Page 1 of the linked brochure). This, of course, is like Al Capone and Baby Face Nelson setting up a party at the Waldorf Astoria to discuss “Tommy Gun serial number removal techniques” and “get-away cars: the fastest and most inconspicuous models,” while inviting federal judges to come and enjoy the fete.

It smells, sure. Just remember, next time you ask your insurance company to reconsider its denial of your health insurance claim, all you will really get is a reconsideration by the insurance company as to whether it should continue to pay benefits, and thus reduce its profits. And all the while they’ll be thinking about “using the claims review process to set up, control and strengthen the defense.”

Funny, by the way, that ACI’s own web site has sequestered information about this conference. ~~Guess we’re not supposed to know about it~~. My bad; looks like I was mistaken about that. I can't get the page to come up on my computer but I am told others can.

Confessions of a money-grubbing, lazy, greedy capitalist tool – you know, the type of person who dislikes insurance companies

2009-10-02T11:07:00.000-07:00

I was shown a post on another blog the other day ranting about how horrible ERISA attorneys are because they charge for their services when their clients really really need their insurance benefits to survive. This other blog post was inaccurate, ignorant, unduly vituperative, and I did not like it.

So I am not gonna link to it.

So there.

But if one person (erroneously) thinks this way then maybe others do too, so it seems appropriate to mention a few things about the world of ERISA claimant’s attorneys, to which I very proudly belong.

First, it is all too often true that, when an ERISA attorney is able to get a denial or termination of benefits reversed, the attorney fee eats into what should have been your benefits. If you think about how the law drastically limits the possible recovery when you do win, that’s pretty much unavoidable if the attorney is working on a contingency. If the law only allows you to recover what the benefits should have been in the first place, and the attorney is getting a percentage of the recovery as his fee, then yes it has to come out of those benefits.

Do we like that? Of course not. The alternatives, however, are for attorneys to work for free (which happens more often than you may suspect but of course does not make for much of a business plan) or for clients to pay by the hour (an arrangement most clients have no interest in nor ability to sustain).

I think of attorneys like me as being much in the mold of John D. MacDonald’s great beach-bum private dick Travis McGee:

McGee's business card reads Salvage Consultant, and most business comes by word of mouth. His clients are usually people who've been deprived of something important and/or valuable (typically by unscrupulous [and sometimes also legal] means) and have no way to regain it lawfully. McGee's usual fee is half the value of the item (if recovered) plus expenses, and those who object to such a seemingly high fee are reminded that getting back half of something is better than nothing at all.

My fellow McGees of ERISAworld and I regain the ill-gotten loot lawfully, if you can use that word to describe a process which brings discredit to the law. And we typically don’t charge as high a rate as Travis did – in fact I’ve never even heard of a contingency fee as high as 50%.

Travis McGee charges what he does because he has to incur some significant risk in working on his clients’ behalf: those people who took the loot in the first place don’t give it up without a fight. My colleagues and I also take on risk, and quite a lot of it, because ERISA doesn’t allow us to recover anything without a fight, never mind making our clients whole. I know for a fact we work very hard, and against some pretty significant odds, all because, to be a bit touchy-feely for a moment, we believe in what we do.

It would be a lot easier to make a hell of a lot better living by just taking cases not subject to ERISA, where we can get a percentage of emotional distress damages, punitive damages, and get in on that lottery that folks like overlawyered.com think is so outrageous. But we choose to specialize in a field which drastically and artificially limits the recoveries our clients can get, and therefore necessarily limits our fees too. We do that because we see injustice and we want to do our small part to square accounts.

Like any other contingency fee practice, the cases we are able to win have to pay not only for themselves but for the ones we lose too. When we get an award of attorney fees (which is not guaranteed in any case) our clients share in that along with us, at least in any arrangement I’ve ever heard of. ERISA claimant's law is genuinely a calling, if you ask me, and no lawyer in his right mind goes into this field in order to get rich.

Look, I’d love it if the law were such that my clients could always be made whole for the way their insurance company treated them and there was enough left over to keep the doors open at my little law practice. But the law is stingy, and if we can’t make them pay all they should, on behalf of our clients and ourselves, we go forth and try to make them pay as much as the law allows. As Travis McGee’s boon companion Meyer said of him in Darker Than Amber,

I’ve seen how you take on problems. You get deeply involved. You bleed a little. Indignation makes you take nutty risks. All that splendid ironic detachment goes all to hell when you detect a dragon off in the bushes somewhere.

And by the way Travis saw ERISA coming. As he said, in 1964 mind you, in The Deep Blue Good-By,

And I am very wary of a lot of other things, such as plastic credit cards, payroll deductions, insurance programs, retirement benefits, savings accounts, Green Stamps, time clocks, newspapers, mortgages, sermons, miracle fabrics, deodorants, check lists, time payments, political parties, lending libraries, television, actresses, junior chambers of commerce, pageants, progress, and manifest destiny.... But these things can never form lecture material for blithe Travis McGee. I am also wary of earnestness.

Anyway, that’s me and my colleagues. Salvage Consultants.

The Problem, redux

2009-10-01T10:15:00.000-07:00

On 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.

The Rising Judicial Chorus: Judge Karlton

2009-09-28T14:36:00.000-07:00

The Honorable Lawrence K. Karlton is Senior District Judge for the Eastern District of California, which is based in Sacramento. Judge Karlton is a 1979 Carter appointee to the federal bench, and before that he was a Superior Court judge in Sacramento County. Earlier this year, on August 13, Judge Karlton issued a decision in a case called Duvall v. Reliance Standard Life Insurance Company. As is often the case in ERISAworld, the insurance company won after cheating the insured out of insurance benefits. That’s dog bites man stuff anymore. Along the way, though, Judge Karlton let it be known he was unhappy with the way ERISA cases are adjudicated.

Take for example the claim file on which Judge Karlton was obligated to base his decision. Because they like to pretend they are federal courts or administrative agencies, insurance companies never call a claim file a claim file. Instead, they like to call it the “administrative record,” because calling it a claim file makes it sound so insurance-y. Judge Karlton would have none of that:

The facts described herein derive from the lodged insurance company’s record (“ICR”). The court uses the phrase Insurance Companies’ Record, rather than Administrative Record, although Administrative Record has become customary in the field, because it suggests an independent record, which is false characterization of both the documents and their review.

So, Judge Kartlon saw through the “administrative record” scam. Later, in describing the procedural facts of the case, he mentioned how Reliance Standard had sent Ms. Duvall a letter describing the requirements for her to undertake an “administrative appeal,” another bogus phrase the insurance companies use to make themselves sound like something they’re not. Again Judge Karlton called them on it:

Once again, the use of appeal suggests an independent body reviewing the file, while in truth, of course, all that plaintiff would get was a reconsideration by the insurance company as to whether it should continue to pay benefits, and thus reduce its profits.

Next Judge Karlton turned to the question of whether Reliance Standard’s denial of benefits should be evaluated under a de novo standard, or “arbitrary and capricious” standard. Remember the de novo standard is the one which is supposed to be the usual one, and the "arbitrary and capricious" standard is to be used only in those exceptional cases where the plan sponsor really wanted the plan administrator to have discretion to use its own judgment in approving or denying claims. Lo and behold Reliance Standard had granted itself “discretion” in its insurance policy, so Judge Karlton had to go with the “arbitrary and capricious” non-standard, commenting courts “have not been stingy in our determinations that discretion is conferred upon plan administrators,” and adding:

Whether stingy or not, because it is in the plan’s interest to limit the scope of review, it is the court’s experience that the plan inevitably confers discretion on the administrator.

Finally, Judge Karlton turned to an examination of Reliance Standard’s approach to Ms. Duvall’s claim. He remarked:

The court does so with some distaste. Applying legal standards to what is clearly a stacked deck brings discredit to the legal process.

"Applying legal standards to what is clearly a stacked deck" -- with these words Judge Karlton has summed up ERISAworld about as well as can be done in ten words. But what's a little discredit to the legal process as long as it's efficient?

The case again is Duvall v. Reliance Standard Life Insurance Company, and the citation is – F.Supp.2d –, 2009 WL 2488179 (E.D.Cal.).

Pre-existing condition? We don’t need no stinkin’ pre-existing condition...

2009-09-22T09:33:00.000-07:00

One of the major points advanced in favor of health insurance reform is that insurance companies abuse the privilege of refusing to cover you if they decide you have a pre-existing condition, or pulling the plug on coverage you already have if they decide you had one you didn’t tell them about when you applied for coverage. That’s a sad state of affairs, without question. As in other areas, of course, ERISA manages to make a bad situation worse. Much worse.

If you get your insurance through your employment, ERISA wipes out any state law protection you might have in this area, and health plans can simply change your “coverage” to exclude a condition you might develop, never mind whether it was pre-existing or not. Consider the sad case of John McGann, who discovered in December 1987 that he was afflicted with AIDS. At least, he thought, he was fortunate to have good insurance from his employer, H&H Music Company, which provided coverage for AIDS treatment up to a $1,000,000 lifetime limit.

John McGann, unfortunately for him, failed to consider what ERISA was about to do to him.

Now, Mr. McGann had an insurance policy through his employment with H&H, already issued, already underwritten, premiums fully paid. There was absolutely no indication his AIDS was a pre-existing condition, and no one ever claimed it was.

But in 1988, when the insurance company, General American Life Insurance Company, got wind of his illness, all of a sudden things changed at H&H:

In July 1988, H&H Music informed its employees that, effective August 1, 1988, changes would be made in their insurance coverage. These changes included, but were not limited to, limitation of benefits payable for AIDS-related claims to a lifetime maximum of $5,000. No limitation was placed on any other catastrophic illness.

Now hold on a minute. John McGann had an insurance policy which said treatment for AIDS was covered up to $1,000,000. An insurance policy, which most people think of as a binding contract that the insurer will cover what it says it will. But H&H just canceled the policy and pulled it out from under Mr. McGann, replacing it with a self-insured plan with the aforementioned stingy AIDS benefit.

By the way, in court, H&H and General American proudly admitted:

the reduction was prompted by the knowledge of McGann’s illness, and that McGann was the only beneficiary then known to have AIDS.

The United States Fifth Circuit Court of Appeals reviewed ERISA, and concluded:

[ERISA] does not prohibit an employer from electing not to cover or continue to cover AIDS, while covering or continuing to cover other catastrophic illnesses, even though the employer’s decision in this respect may stem from some “prejudice” against AIDS or its victims generally.

It wasn’t even that hard, either. ERISA is pretty clear that your employer, if, say, the insurance company threatens to raise premiums in response to an employee coming down with a covered illness, can just cancel that part of the coverage and leave the sick employee, who didn't think they were in the ranks of the uninsured, high and dry. Indeed, never mind higher premiums, ERISA allows coverage to be precipitously canceled because of, say “some ‘prejudice’ against AIDS or its victims.”

That’s ERISA for you. If we don’t fix ERISA, now, then any “reform” we might achieve will be empty indeed.

The case is McGann v. H&H Music Co., and the citation is 946 F.2d 401 (5th Cir. 1991).

By the way, John McGann died in June 1991.

A basic primer on "de novo" versus "abuse of discretion" judicial analysis

2009-09-21T12:18:00.000-07:00

We are exploring the “discretion” scam which infects ERISA law, and how it unduly stacks the deck in favor of insurance companies when you take them to court. I thought an illustration of how big a difference it makes might be useful here, so join me in a review of two recent cases from United States Circuit Courts of Appeal: the Seventh Circuit’s Krolnik v. Prudential Insurance Company of America, which is reported at 570 F.3d 841 (7th Cir. 2009), and the Eleventh Circuit’s Doyle v. Liberty Life Insurance Company of Boston, which is reported at 542 F.3d 1352 (11th Cir. 2008).

One of the big problems with ERISA exemplified by these cases is that the whole concept of a “standard of review,” which is what courts apply to decide whether to overturn the decision of some other body, is a complete mismatch when you’re talking about an insurance company denying your claim. Traditionally the “other body” is one of two things. They are either a lower court or administrative agency, which, say what you want about them, are at least conceptually impartial and have no direct, personal stake in the decision they are rendering. Or they are a trustee vested by a trustor with discretion to bring to bear their own judgment in making decisions about how trust assets are to be distributed. A classic trustee is also impartial, but sometimes trustees have conflicts of interest, which is legal as long as the trustor was OK with it, and which is taken into account by courts. More about that in a later post.

An insurance company, on the other hand, is a party to the insurance contract in question, which is accused of breaching that contract. In a breach of contract case, the court is supposed to decide for itself whether one of the parties is in breach, not have a thumb on the scale in favor of the breaching party as if it were itself a lower court which has already endorsed the decision it made.

Krolnik discusses “de novo” review, where the court does not grant “deference” to the insurance company, and describes the problem with “standards of review” as applied to an insurance company:

Then there is a dispute about whether Krolnik can work even with all of his physical and mental problems. Some physicians say yes, others no. If judicial review were deferential, then Prudential’s decision would be sustained easily. But the court must make an independent decision. To do this, the finder of fact must weigh all of the medical evidence. ... If a paper record contains a material dispute, a trial is essential. And at trial Krolnik would be free to offer medical evidence of his own and cross-examine the physicians who produced the reports that underlie Prudential’s decision. ....

All in all, it would be best for judges and lawyers to stop thinking about “de novo review” – with the implication that the judge is “reviewing” someone else’s action – and start thinking about independent decision....

So that’s how at least one court thinks a so-called “de novo review” should proceed: it’s not a “review” at all, in the sense that some other impartial body has made a decision; it’s a wholly independent decision by a judge in the first instance.

But of course that’s not how ERISA generally works. For a flavor of that, let’s take a look at Doyle, in which the Eleventh Circuit described how so-called “abuse of discretion review” works. In pertinent part:

(1) Apply the de novo standard to determine whether the claim administrator’s benefits-denial decision is “wrong" (i.e. the court disagrees with the administrator’s decision); if it is not, then end the inquiry and affirm the decision.

OK, so the Eleventh Circuit asks whether the insurance company was wrong to deny benefits. If the insurance company was right, it wins. Fair enough. But does it lose if it was wrong? You would think so, but not necessarily:

(2) If the administrator’s decision is in fact “de novo wrong,” then determine whether he was vested with discretion in reviewing claims, if not, end judicial inquiry and reverse the decision.

Well, at least as long as the insurance company was not “vested with discretion,” then if it is wrong it loses. So far so good. But as we have seen insurance companies almost always vest themselves with discretion when they write their ERISA policies, so we go to the next stage, which is where things get screwy:

(3) If the administrator’s decision is “de novo wrong” and he was vested with discretion in reviewing claims, then determine whether “reasonable” grounds supported it (hence, review his decision under the more deferential arbitrary and capricious standard).

Wait ... what was that? If the decision was wrong then do what? After paying some lip service to the effect of a conflict on interest on the insurance company’s part (more on that later), the Eleventh Circuit goes on to say a decision which was, you know, wrong is nonetheless to be upheld if it was “reasonable.”

And when we get to a discussion a bit later on of what it takes to be considered ~~reasonable~~ “reasonable,” your head might really explode.

And you may very well have a very difficult time getting your insurance company to pay for the repair work.

How We Got Here – the “Abuse of Discretion” Scam, Part II

2009-09-15T10:59:00.000-07:00

Earlier we started a discussion about the “abuse of discretion” scam. In a nutshell, the so-called “standard of review” a court employs in evaluating an insurance company’s decision to deny your claim is very often, in and of itself, outcome-determinative. Given that a great many insurance company denials are, shall we say, questionable, if the court uses a de novo analysis you’ve got a good chance of winning, and thereby securing the very stingy remedies ERISA allows to aggrieved claimants. But if the court uses a deferential analysis, then it becomes much more difficult – it is no exaggeration to say often impossible – to get that denial turned around by a judge.

Who in their right minds would design a judicial system this way?

To answer that we need to consider a Supreme Court case called Firestone Tire & Rubber Co. v. Bruch. If you’d like to look up the case the citation is 489 U.S. 101 (1989). In Firestone the Court considered what the “standard of review” ought to be for claims under ERISA. Right from the get-go the insurance industry won a big victory there, as talking about a “standard of review” instead of, say, a “burden of proof” implies we are looking at the decision of some sort of impartial administrative agency instead of an insurance company alleged to have breached its contract. We’ll address that problem in a future post.

Anyway, the Firestone Court observed that ERISA is based to a large extent on trust law, which it undeniably is. That’s because when ERISA was enacted its primary focus was on pension plans, not things like health insurance policies, and pension plans do actually, sorta kinda, resemble trusts: the employer sets aside a pile of money to fund retired employees’ pension benefits.

And trust law, as we have seen, does indeed treat the decisions of a trustee with deference if the trust instrument confers discretion on the trustee. So the Firestone Court just went ahead and applied the general rule of trust law: if a trustee is not granted discretion in a trust instrument, then a court considers the decision de novo. If the trust instrument does confer discretion on the trustee, then a court has to find an abuse of discretion before it can rule against the trustee.

Now, the Supreme Court apparently thought it was issuing a decision generally favorable to claimants. Firestone argued that, never mind what the terms of the benefit plan in question might say, denials of benefits under ERISA should always be analyzed under an “abuse of discretion” standard (ERISA defendants are nothing if not brazen in making incredibly self-serving arguments). This the Supreme Court rejected, because “adopting Firestone's reading of ERISA would require us to impose a standard of review that would afford less protection to employees and their beneficiaries than they enjoyed before ERISA was enacted,” and God knows we don’t want to be doing that. So the Supreme Court said the general rule is de novo analysis, and only in those rare circumstances where the plan sponsor decides it wants the insurance company to have discretionary authority will deferential analysis be used.

Well, once Firestone came out it took about five minutes before insurance companies started putting language in their insurance policies by which they granted discretion to themselves – the employer purchasing the policy had no role in creating this language, and in the vast majority of cases didn’t even know it was there.

And the courts, regrettably, gave effect to this self-conferred “discretion.”

That’s the start of how we got to this state of affairs. More soon about the implications.

They aren’t pretty.

"As any teacher of insurance law knows," ERISA stinks

2009-09-14T07:36:00.000-07:00

We’ve heard so far from me, a frustrated lawyer who’s seen too many clients cheated by insurers and ERISA, and from several frustrated federal judges who’ve grown weary of having to apply this most unjust law. Today academia enters the fray. Professor Tony Sebok of the Benjamin N. Cardozo School of Law blogs today at TortsProf Blog about ERISA and its malignant effects:

As any teacher of insurance law knows, ERISA—the Employee Retirement Income Security Act of 1974 (29 U.S.C. § 1001 et seq.)—has been interpreted by the Supreme Court to provide complete preemption of all state contract and tort remedies relating to the interpretation of employer-provided health insurance plans. These plans, of course, sit exactly at the center of the current debate over healthcare reform. In his speech last week, President Obama promised “[a]s soon as I sign this bill, it will be against the law for insurance companies to drop your coverage when you get sick or water it down when you need it the most.”

This is a wonderful claim, except that the federal government, through ERISA, preempted the state law remedies that would have allowed disappointed policyholders who got their coverage through their employers to sue when companies “drop[ped their] coverage” when they got sick or “water[ed] it down” when they needed it the most. To get a sense of how much damage the federal government has already done, one only has to read the angry pleas to Congress to remove this preemption from judges like Federal District Court Judge William Young in Andrews-Clarke v. Travelers Ins. Co., 984 F. Supp. 49, 50 (D. Mass. 1997) who wrote, “ERISA has evolved into a shield of immunity that protects health insurers, utilization review providers, and other managed care entities from potential liability for the consequences of their wrongful denial of health benefits.”

One simple reform to the healthcare system which would be simple, budget-neutral and actually conservative would be to repeal the part of ERISA that immunizes health insurance providers from state common law actions in tort and contract. I honestly do not know whether the plans being considered by the Congress would provide this repeal, or whether they simply maintain the federal preemption but provide for federal remedies with more teeth than the current system. The current federal remedies—reimbursement of out-of-pocket expenses by a victorious beneficiary or injunctive relief—are useless for most people, and certainly lack the deterrent effect of state tort and even contract remedies.

If anyone knows whether Obamacare will finally get rid of ERISA preemption, please let me know.

We know that the most-discussed proposal to date, HR 3200, would not only not eliminate ERISA preemption but would expressly continue it, so Professor Sebok would be disappointed about that, as would we all. But HR 3200 is only one bill; there are others and there more to come, so now is the time to write your Congressional representative.

A Modest Proposal: Make Some Noise!

2009-09-10T10:20:00.000-07:00

From the president’s speech last night:

“More and more Americans pay their premiums, only to discover that their insurance company has dropped their coverage when they get sick, or won't pay the full cost of care. It happens every day.”

“As soon as I sign this bill, it will be against the law for insurance companies to drop your coverage when you get sick or water it down when you need it most.”

“Insurance executives don't do this because they are bad people. They do it because it's profitable. As one former insurance executive testified before Congress, insurance companies are not only encouraged to find reasons to drop the seriously ill; they are rewarded for it.”

“Now, I have no interest in putting insurance companies out of business. They provide a legitimate service, and employ a lot of our friends and neighbors. I just want to hold them accountable.”

Gee, I have an idea about what law needs to be amended to accomplish that.

This is the time to get the word out and to be heard. The president also said: “If you come to me with a serious set of proposals, I will be there to listen. My door is always open.” Hold him to his promise! Call, write, agitate, contact your Congressional representatives and the White House.

Here are some tips for doing so effectively, shamelessly plagarized from “How to Lobby Your Member of Congress,” Amnesty International, www.amnesty.usa.org; and “How to Lobby Your Member of Congress,” American Civil Liberties Union, www.aclu.org:

Members of Congress rarely hear from their constituents on most issues. Sometimes hearing from a handful of concerned citizens will cause a Senator or Representative to pay attention to a particular issue and encourage him or her to vote the right way.

In general the more personal your lobbying contact is, the more effective it will be. While a personal discussion with a Member of Congress is most effective, a meeting or telephone conversation with one of his or her assistants is almost as good.

You do not need to be an expert on the issue to call or write your Member of Congress’ office. All you need to communicate is that you want the member to support or oppose a particular measure. When you call a Member’s office give your name and address and ask whomever takes your call to let the Member of Congress know that you favor or oppose something.

It is very important that you lobby both Members of Congress who may support your views and those who may not. Lobbying can change votes so it is critically important that you lobby those who disagree with you. Lobbying supporters provides them with evidence of support for their position and allows them to be more active in support of that position.

Remember that all contact is good! Start small, and then increase your activism as you gain experience.

• Write a letter. Letters are an important and effective way to introduce yourself and your purpose. A personal letter is much more effective than a form letter or postcard. Short handwritten letters are best, and always remember to be specific about the action you want your Member of Congress to take. Make sure to include your full address so they know you live in the district. Avoid petitions, as they are not as effective.

• Make a phone call. You can call your U.S. senator or representative by contacting the Capitol Hill switchboard at 1-202-224-3121. Once you are connected to the right office, ask to speak with the staff member who handles labor issues, and/or employee pension and benefits regulation. Clearly have in mind a specific request of your representative. If you are planning a visit, this is also the time to set up a meeting to discuss your request.

No surrender! -- redux

2009-09-09T09:28:00.000-07:00

This blog is all doom and gloom, and for good reason: ERISA stinks! But that ought not stop us from doing what the little the law allows to try to right these wrongs. Therefore, a periodic call to arms seems appropriate. Herewith, consequently, a reprise:

If you’ve spent any time on this blawg, and you’ve experienced a denied insurance claim subject to ERISA, you may have developed a sense of hopelessness, not to mention frustration and outrage. All, in my opinion, very appropriate reactions. There’s no use soft-peddling the malignant effects of ERISA – it is very arguably the most unjust law on the books.

But the understandable reactions described above ought not lead to paralysis or inaction. To become passive and to simply yield to insurance company abuse only makes a bad situation worse, for yourself and for others in your unfortunate position.

The calculus ERISA presents to an insurance company goes something like this: we deny 100 claims which probably ought to be approved. Perhaps 20 of those people will even realize we have done something wrong, because we can write bogus denial letters that make it sound like the denial is proper even though we know it probably isn’t. Out of the 20 people who realize they’ve been screwed, perhaps 10 will contact a lawyer, and perhaps five will end up actually taking us to court. And once in court, since we get the benefit of the most absurd stacking of the legal deck known to the law, we can probably count on winning three of those cases, even assuming the claimant is right and we are wrong. So by denying 100 claims wrongfully, thanks to ERISA, we can probably reap the financial benefit of not having to pay 98 of them, and the two we might lose in court, even if we are ordered to pay attorney fees for the other side, won’t come close to canceling out that benefit (remember in no case can consequential or punitive damages be awarded, so we never have to worry about one big loss wiping out the benefit we derive from ripping off those original 100 people).

The only way to upset that calculus even a little bit is for people to stand up for their rights, take the insurers to court in appropriate cases, and make them explain themselves to a judge. The law provides meager rights indeed, but there are lawyers (I am one of them) who can and do go to court and enforce those rights at least. Given the state of the law, it is very, very unlikely we can make you whole, but we can often recover something, and in the process make the insurance companies explain their bad behavior. Gradually, gradually, their fraud and abuse is thereby exposed to the light of day.

So: if you think you’ve been ripped off by your ERISA insurance company, there is every likelihood that you have. Find a lawyer specializing in ERISA claims (this is pretty important because ERISA is arcane and a law unto itself; a generalist is swimming upstream in trying to deal with all the absurd and counterintuitive rules), and see if the lawyer can find a way to enforce what rights the law provides. Take a stand and make them explain themselves!

How We Got Here – the “Abuse of Discretion” Scam

2009-09-08T11:16:00.000-07:00

As we have seen one of the many problems with ERISA is that we pretend insurance companies are something other than what they really are. What they are is private corporations seeking to maximize shareholder value by turning a profit. Nothing wrong with that, at all. But along with that perfectly legitimate status usually goes corresponding responsibilities, including having to defend in court against claims of breach of contract, and having to make aggrieved parties whole when a court determines a contract has been breached.

What they are not is a trustee. Trustees are supposed to put the interests of the trust beneficiaries ahead of everything else, including the trustee’s own interest. Trustees are not supposed to allow a profit motive, or a desire to maximize shareholder value, or any other consideration, to affect their judgment in exercising their discretionary powers under a trust instrument.

But, of course, we all too often treat insurance companies as if they were trustees, which renders insurance contracts unduly difficult to enforce in court and malignantly affects the behavior of insurance companies.

So how did we get here?

First we need to consider “standards of review.” That’s a phrase which refers to the amount of scrutiny, or the amount of skepticism, a court will apply when considering the decision of some other entity. It’s generally a critical consideration, and very often is in itself determinative of the outcome of a judicial dispute.

In broad strokes, and as relevant here, there are two “standards of review” in play. First is “de novo” review – that’s when a court essentially makes its own independent decision about a question, and the fact that someone else previously made a decision on the same question doesn’t matter at all – it’s as if that first decision never happened, and the court just goes ahead and decides the question based on its own evaluation of the evidence and its own good judgment.

Then there’s deferential review, usually called either “abuse of discretion” or “arbitrary and capricious” review. In this sort of review that previous decision matters a lot. A court will not make its own independent decision on the question, but instead will look to see if there’s any good reason to overturn the decision that other party already made. If the party contesting the decision can’t come up with a damn good reason to overturn it, then the court will simply default to the previous decision, even if it would have decided the matter differently left to its own devices.

Here’s an example. Say you’ve lost a case before a trial court, and you decide to take it up on appeal. Generally, the court of appeal will apply different standards of review based on what sort of question it is looking at.

If you are saying, for example, that the trial court made mistakes in the way it evaluated the evidence – it believed the testimony of Smith and you think Smith was lying, say – then the court of appeal will apply a deferential standard of review to that question. The trial court, after all, was the one which actually heard the testimony in question and had the opportunity to observe Smith testifying. Indeed a primary function of trial courts is to determine which of two competing versions of the facts is the right one. So a court of appeal is not going to reverse a trial court’s evaluation of the evidence unless it is very clear the trial court committed a gross error, that the trial court’s conclusion was absurd or ridiculous. And that is the case even if the court of appeal would have evaluated the evidence differently given the opportunity. That’s deferential review.

Now let’s say your argument to the court of appeal is that the trial court erroneously interpreted some legal principle which affected the outcome of the case. You’re not haggling over the facts, but you’re saying the trial court applied the law incorrectly. Now the court of appeal is going to apply de novo review: it is going to make its own decision about what the proper legal principles are, and if it disagrees with the trial court, it will reverse the trial court’s decision. The court of appeal’s job is to figure out what the proper legal principles are, and it is doesn’t need to have heard the witnesses testify or make its own factual findings in order to do so. So all it takes for a reversal to happen is that the court of appeal decides the trial court was incorrect – that’s all, just incorrect. And that is the case even if the trial court’‘s legal interpretation, albeit incorrect according to the court of appeal, was perfectly reasonable and understandable.

So here’s the analogy: if you could appeal an umpire’s call in a baseball game, the Court of Baseball Appeals isn’t likely to reverse a decision that a particular pitch was in the strike zone: you aren’t going to get far saying that pitch was a ball, not a strike. That’s because the umpire is the one who actually saw the pitch, and it’s his job to decide whether it was within the strike zone or not. But if the umpire decides that it takes four strikes instead of three to constitute a strikeout, now you are going to get a reversal just by convincing the Court of Baseball Appeals that the umpire got the rules themselves wrong, and the umpire’s own decision gets no weight in that decision.

When we continue we’ll take a look at a couple of things. First, to even think about a “standard of review” when you’re considering whether an insurance company breached its contract is a mismatch from the get-go. Second, to pretend an insurance company is the sort of entity which ought to ever have its claim denials subject to deferential review is crazy. But that’s exactly what we do.

The Rising Judicial Chorus: Judge Young

2009-09-04T11:07:00.000-07:00

William G. Young is a judge for the United States District Court for the District of Massachusetts; he was a 1986 Reagan appointee and served as chief judge from 1999 to 2005.

In 1997 Judge Young issued an opinion in a case called Andrews-Clarke v. Travelers Insurance Company. In a nutshell, Richard Clarke drank too much, and sought treatment for his alcoholism, which was a covered benefit under his ERISA-governed Travelers insurance policy. Travelers and its utilization review contractor, Greenspring, refused to authorize the in-patient stay requested by his doctors, and Mr. Clarke was released ahead of schedule. He tried to commit suicide, was readmitted to a detoxification facility, and was again released ahead of schedule due to Travelers’ and Greenspring’s refusal to authorize the requested length of stay.

Here’s what happened next, as described by Judge Young:

By now, it was tragically apparent to everyone but Travelers and its agent, Greenspring, that Clarke was a danger to himself and perhaps others. After conducting a commitment hearing, the Haverhill District Court so found, and ordered Clarke committed to a thirty-day detoxification and rehabilitation program. The court referred the issue of Clarke's placement to the Court Clinic, which in turn sought Greenspring's approval for an insured admission to a private hospital. When Greenspring - despite the fact that enrollment in a thirty-day inpatient detoxification program is a defined benefit of the Travelers insurance policy - incredibly refused to authorize such a private admission, the court ordered Clarke committed to the Southeastern Correctional Center at Bridgewater for his detoxification and rehabilitation.

Clarke's life now spiralled inexorably down and out of control. While a patient at Bridgewater, he was forcibly raped and sodomized by another inmate in his unit. He received little in the way of therapy or treatment. After his release from Bridgewater on October 25, 1994, he made his way back to Haverhill where his wife and four minor children still lived. Diane Andrews-Clarke told Clarke that he could return to the marital home only if he remained sober. Unable to do so without hospitalization, Clarke began a three-week drinking binge.

Richard Clarke, age 41, committed suicide on November 12, 1994. His wife, Ms. Andrews-Clarke, sued Travelers for wrongful death, and the case ended up before Judge Young. We’ll let him take it from there (I have omitted footnotes, but you can find them in the original case report; the citation is below):

Travelers and Greenspring promptly removed her case to this Court and then, just as promptly, asked this Court to throw her out without hearing the merits of her claim.

This, of course, is ridiculous. The tragic events set forth in Diane Andrews-Clarke's Complaint cry out for relief. Clarke was the named beneficiary of a health insurance policy offered through an employee benefit plan. That policy expressly provided coverage for certain medical and psychiatric treatments, including enrollment in a thirty-day inpatient alcohol detoxification and rehabilitation program. Doctors at several hospitals, and even the courts of the Commonwealth of Massachusetts, determined that Clarke was in need of such treatment, but the insurer and its agent, the utilization review provider, repeatedly and arbitrarily refused to authorize it. As a consequence of their failure to pre-approve - whether willful, or the result of negligent medical decisions made during the course of utilization review - Clarke never received the treatment he so desperately required, suffered horribly, and ultimately died needlessly at age forty-one.

Under traditional notions of justice, the harms alleged - if true - should entitle Diane Andrews-Clarke to some legal remedy on behalf of herself and her children against Travelers and Greenspring. Consider just one of her claims-breach of contract. This cause of action - that contractual promises can be enforced in the courts - pre-dates Magna Carta. It is the very bedrock of our notion of individual autonomy and property rights. It was among the first precepts of the common law to be recognized in the courts of the Commonwealth and has been zealously guarded by the state judiciary from that day to this. Our entire capitalist structure depends on it.

Nevertheless, this Court had no choice but to pluck Diane Andrews-Clarke's case out of the state court in which she sought redress (and where relief to other litigants is available) and then, at the behest of Travelers and Greenspring, to slam the courthouse doors in her face and leave her without any remedy.

This case, thus, becomes yet another illustration of the glaring need for Congress to amend ERISA to account for the changing realities of the modern health care system. Enacted to safeguard the interests of employees and their beneficiaries, ERISA has evolved into a shield of immunity that protects health insurers, utilization review providers, and other managed care entities from potential liability for the consequences of their wrongful denial of health benefits.

***

Does anyone care?

Do you?

The case again is Andrews-Clarke v. Travelers Insurance Company, and the citation is 984 F.Supp. 49 (D.Mass. 1997).

ERISA Wants Your Claim to be Denied – Part III

2009-09-03T10:08:00.000-07:00

This week we’ve been considering the theory of “efficient breach,” which holds that it’s a fine thing to do to breach a contract so long as everyone comes out even or ahead. A critical aspect of this theory is that the breaching party has to make the other party whole, and if it can incur that expense and still come out ahead then giddyup.

So a party thinking about breaching a contract has to figure out what that expense is likely to be – how much is it likely to cost to make the other party whole? Only then will the breaching party have a number to compare to the gain he expects to realize from breaching.

Now consider Deny-Em-All Insurance Company (“DIC”) doing this calculus under the influence of ERISA. Let’s see, says DIC, since we have granted ourselves “discretion” in the policy and therefore can only be liable if it can be shown we were “arbitrary and capricious,” there’s a good chance that we won’t be liable at all and the cost of "making the other party whole" will be ... zero!

Then there’s this: in the unlikely event we have to pay something to the other party, thanks to ERISA in no event will we have to actually make them whole, as we would if justice and fairness were involved here.

So ERISA says to the DICs of the world, go ahead and breach! The cost of making the other party whole (i.e. the artificially low remedy ERISA allows, discounted further because there is likely to be no liability at all thanks to the “discretion” scam) almost has to be less than the cost of, you know, living up to your contractual obligations.

Therefore, under an “efficient breach” approach, not only do the DICs breach contracts with no fear of any meaningful consequence, they do so with the affirmative blessing of the law.

Meanwhile, real people go without. But providing them (as the insurance contract promises) with medical care, or disability benefits, isn’t “efficient,” according to ERISA.

ERISA: 35 years old and still incorrigible

2009-09-03T08:42:00.000-07:00

xtremErisa notes that this month marks the 35th anniversary of ERISA’s enactment, and notes some of the good things about ERISA, of which there are a few. The xtremErisa blog is an entertaining read overall, and offers a more balanced view of ERISA’s good and bad points than you will get here (here we are concerned with keeping insurance companies honest, and there the focus is expanded beyond that to pension regulation and such). You’ll also get some amusing pop culture references there (I’d do some of that here too, except once I exhausted the possibilities offered by Jimmy Buffett, Travis McGee and Fernwood Tonight I’d be out of ammo).

Anyway, OK, I’ll say it. ERISA, happy birthday.

Now please go away.

ERISA Wants Your Claim to be Denied – Part II

2009-09-02T10:21:00.000-07:00

The other day we considered the legal theory of “efficient breach” – the idea that breaching a contract is actually a good thing to do provided doing so is “economically efficient.” It is a bit of an oversimplification, but “economically efficient” essentially means that everyone involved comes out at least as well as they would have if the contract had not been breached, and the breach causes assets to be devoted to their most valuable use.

So, if a party can breach a contract, make the other party to the contract whole by paying them damages, and still come out ahead, then “efficient breach” theory wants that party to breach the contract. By recovering damages for the breach, the other party will end up in the same position as if the contract had been performed, and if the breaching party can pay those damages and still come out ahead because of, say, a better deal which comes along, then theoretically at least the asset in question is being devoted to a more valuable use.

Let’s take a closer look at the calculation to be undertaken by the party thinking about breaching a contract. There are two numbers that party has to compare to each other: the amount of damages it is likely to have to pay the other party, against the gain it stands to realize, by virtue of the breach. According to “efficient breach” theory, if the former is smaller than the latter then the party should breach the contract.

It follows, therefore, that if you make the former number (the cost of breaching) smaller, or the latter number (the benefit derived from breaching) larger, then you are going to see more breaches of contracts.

Tomorrow we’ll close the loop by examining how ERISA affects this calculation. Here’s a hint: it makes that first number – the cost of breaching – artificially low, and therefore it causes more contracts to be breached (i.e. more valid insurance claims to be denied). And this from a law that was supposed to “protect ... the interests of participants in employee benefit plans.”