The president said “let me know.” OK.

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

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”

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

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.