I’ve mentioned before that I do a lot of disability work. 99.9% of my work is for folks seeking Social Security Disability. That system is fair, by and large. Every once in a while I get a case involving a private disability plan-one that my client got through work. These private cases tell a lot about what is wrong with our present health care system, and what people like Max Baucus are doing precious little to change.
Back in the 1970s Congress passed the Employees Retirement Income Security Act (ERISA). The major intent of the law was to protect employee pensions. But the law included in its scope all employee benefits, including health insurance plans and disability plans.
Now, the folks who administer pension plans are fiduciaries. They make a lot of investment decisions, and they have a right to be protected from people second guessing those decisions. So, the courts have held that they can be sued for bad investment decisions only if those decisions were so bad that they can be considered “arbitrary and capricious”. So far so good.
But the courts took that a step further. The courts held that the same standard applied for health care benefits and disability benefits. In other words, the courts would uphold the decisions of the plan trustees so long as that decision was not arbitrary and capricious.
What does that mean in practice? It means that the plan administrator can choose to rely on the opinion of a doctor, nurse, or other bureaucrat that has merely reviewed the patient’s records, over the opinion of a doctor who has actually seen and treated the patient. For that matter, it can choose to rely on that doctor’s opinion over the opinion of 5 other doctors, so long as that doctor can dress up his or her rationale for denying benefits in language that is not patently absurd.
There’s only one requirement the plan must meet in order to get this type of treatment. It has to put language in the plan documents giving itself the right to be judged by this standard. Needless to say, they all do.
Now, if you were to buy (if you could afford) a health insurance or disability plan on the private market, and you had a dispute with the company, you could go to court and the judge would hear the case de novo. That means the judge could make his or her own decision, based on the evidence, with the policy holder having only to prove eligibility for benefits by a preponderance of the evidence-a much easier standard to meet. In fact, in normal insurance benefits cases, any ambiguities are resolved against the company. Not so if you are seeking employment benefits. The cards are all stacked against you.
Now, some judges didn’t much like this way of doing things, but they had to follow the Supreme Court’s dictates. So, they drew a distinction in cases involving private insurance companies to which the plan trustees often outsource their obligations. They said that if the companies were merely administering plan money (i.e., none of their own money was at risk), then the arbitrary and capricious standard could apply. But, if the plan had chosen to completely outsource its obligations, by simply buying a policy from the insurance company, the courts (at least some of them) said the companies, since their own money was at issue when they paid out, were under a conflict of interest, and the de novo standard should apply.
In June 2008 the Supreme Court had its say on the issue. The result? The court held that the companies conflict of interest (which it admitted existed) was a factor to be considered in deciding whether a decision was arbitrary and capricious, but was not determinative. In other words, pretty much business as usual, with the claimant gaining an only slightly better chance to win.
Now, in my own opinion, Congress never intended any of this. Its goal was to correct pension abuses, not screw employees out of their benefits. But it has, naturally, done nothing about the situation, so now, any time an insurance company wants to screw an employee, they can do it, if they put in a minimal amount of effort to document a specious reason for doing so.
When do employees win? Not when they are merely entitled to the benefits, but when the companies and/or their claims examiners are so stupid or arrogant that they don’t even bother to hide what they’re doing or when their explanation for their denial is wholly illogical. Believe it or not, they sometimes fail that test. But not often, certainly not often enough.
Oh, and another thing. We hear a lot about tort reform, but no one talks about the way the legal system is stacked against people with even good benefit claims. The law provides that a person suing for benefits under ERISA can get their attorneys fees paid if they win. That’s pretty important, particularly in claims for health benefits, because the amounts at issue might not be big enough to induce an attorney to take the case on a contingent basis. But the courts have held that winning the case is not enough-proving the company has been arbitrary and capricious is not enough-you have to prove the company acted in bad faith, plus satisfy a few other criteria.
Needless to say, I am not particularly anxious to get ERISA disability cases. Even if you win, you can’t sure you’ll be paid enough to cover the time you’ve spent. Also needless to say, there are a lot of folks out there that have been wrongly denied disability and health benefits who have no effective means of redress.
Only in America.
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