Health Insurance Claim Disputes and ERISA

ERISA Health Insurance Disputes in the First Circuit

George M. Thompson
The Law Firm of George Thompson
PO Box 1181
Suite 280, 1900 West Park Drive
Westborough, Massachusetts
01581

508-366-1304
gthompson@gthompsonlegal.com

The Employee Retirement Income Security Act ("ERISA")

  1. An Introduction

In general, ERISA, 29 U.S.S.§1001 et seq., is a comprehensive federal statute which regulates employee benefit plans which can provide pensions and/or health, disability and life insurance benefits to employees and their families . ERISA uniformly regulates the manner in which employee benefit plans are administered but does not dictate the express terms and conditions of such benefit plans. See Aetna Health Inc. v. Davilla, 542 U.S. 200, 208 (2004); Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 91 (1983). Congress concluded that a single federal standard was "desirable" in the field of employee benefit law "because it will bring a measure of uniformity in an area where decisions under the same set of facts may differ from state to state."H.R.Rep.No.93-533, at 12 (1973). ERISA neither compels employers to establish benefit plans nor restricts the freedom of employers to define the benefits they chose to provide. Lockheed Corp.v. Spink, 517 U.S. 882, 887 (1996); Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73,78 (1995).

ERISA's shadow is cast in the private sector over tens of millions of employees. It governs fully insured and self insured plans. An employee benefit plan has five elements under ERISA: (1) there is a plan/fund or program; (2) "established" or "maintained"; (3) by an employer or employee organization or both; (3) for the purpose of providing benefits to (5) "participants" and "beneficiaries". ERISA §3(1); 29 C.F.R. §2510.3-1 and 2510.3-1(a)(2). The Department of Labor has also promulgated regulations allowing for "Safe Harbor" exceptions to the application of ERISA to a work site benefit plan if the benefit plan is completely voluntary, no contributions are made by the employer, the employer receives no consideration for the plan , and the employer's actions are largely administrative in nature, i.e. collecting premiums, without any endorsement by the employer. 29 C.F.R. §2510.3-1(j).

Although its shadow is both long and wide, ERISA does not apply, however, to governmental benefit plans (federal, state, county, municipality) and "church" plans as that term is defined under the statute.

Congress granted oversight and regulatory authority to the Department of Labor ("DOL") for enforcing compliance with the provisions of ERISA by employers, insurers, third party administrators, trustees and other benefit plan sponsors and administrators. For more than 30 years, ERISA's system of uniform regulation for employee benefit plans has fostered the development of widespread employment based coverage of health, disability, life insurance and other benefits.

  1. What is the Claim and Appeals Process?

ERISA promises a "full and fair" review of any claim for benefits. See 29 U.S.C. § 1133(1) and (2). To that end, DOL has promulgated minimum requirements for benefit plan procedures. See 29 C.F.R. §2560.503-1 et seq. For example,

  1. every employee benefit plan "shall" establish and maintain reasonable procedures governing the filing of claims, claim decisions, and the appeals of adverse decisions
  2. denial decisions shall be written in a manner "calculated to be understood by the claimant" setting forth the specific reason for the denial; reference to the applicable plan provisions; describe any additional information necessary for the claimant to "perfect" the claim with an explanation as to why the information is necessary
  3. in the case of a denial by a group health plan, provide free of charge, a copy of any guideline or protocol relied upon in making the denial, at the request of the claimant
  4. if the denial is based on medically necessary or experimental treatment, the entity denying the claim must provide an explanation of the scientific or clinical judgment for the denial, applying the terms of the plan to the claimants medical circumstances;
  5. in the case of a group health claim requiring urgent care, a description must be provided of the "expedited review process" for urgent care claims.

Appeals must be reviewed by somebody other than the initial reviewer with no deference to the original decision. In cases involving the exercise of medical judgment, the plan administrator must consult with a health care professional in the relevant field when conducting its review. Id. §2560.503-1(h)(4).

There are strict deadlines that need to be complied with by both the individual seeking health benefits as well as the entity reviewing the health benefit claim. Effective with all new claims submitted after January 1, 2002, DOL recognized a maximum decision making period distinction between (a) urgent care claims under a group health policy and (b) non-urgent group health care claims in the revised ERISA claim procedure found at 29 CFR §2560.503-1 (the ERISA Claim Procedure or "ECP").

"Urgent care" is defined at (m)(1)(i) of the ECP and generally involves a situation where the application of a time period to decide a health claim could "seriously jeopardize" the claimant's health or cause "severe pain" to the claimant. The claimant's physician is empowered to deem his patient in need of urgent care at (m)(1)(iii).

The DOL believed that "speedy decision making is a crucial protection fro claimants who need either medical care or the replacement of income that disability benefits provide." Federal Register, V. 65 (Nov.21, 2000) at 70247.

DOL demarcated two types of non-urgent health care claims: (a) "pre-service" group health claims that involve access to medical care and (b) "post-service" group health claims that involve purely the payment or reimbursement of costs for medical care that has already been provided. Id. at 70248. A "pre- service" claim means any claim for a benefit under a group health plan with respect to which the terms of the plan condition receipt of the benefit, in whole or in part, on approval of the benefit in advance of obtaining medical service. ECP at (m)(2). A "post service claim" is understood to mean any claim for benefit under a group health plan that is not a pre-service claim. Id. at (m)(3).

Initial adverse benefit decisions on "urgent care" claims under a group health plan have to be made as soon as possible but no later than 72 hours after the claim is received. §2560.503-1(f)(2)(i).

Initial adverse benefit decisions on "pre-service" claims shall be made as soon as possible but not later than 15 days after receipt of the claim. §2560.503-1(f)(2)(iii)(a). The Plan (claim decision maker) may extend the 15 day period for another 15 days if special circumstances exist beyond the plan's control that interfere with its ability to make a decision.

Initial adverse benefit decisions on "post service" claims must be made within a reasonable period of time but no later than 30 days after receipt of the claim. Id. at 1(f)(2)(iii)(b). The 30 day period can be extended once for an additional 15 days for special circumstances.

Individuals who have their group health claims denied will have up to 180 days, at a minimum, to appeal the adverse benefit decision. Id. at 1(h)(3)(i). Decisions on appeals submitted by claimants with "urgent care" claims must be made no later than 72 hours of the appeal. Id. at 1(h)(2)(i). Decisions on "pre-service" appeals must be made no later than 30 days after receipt. Id. at 1(f)(2)(ii). Decisions on "post service" appeals must be made no later than 60 days after submission.

A copy of the published Federal Register DOL ERISA claims procedure is attached as Exhibit 1 to this article.

(3.)What is the Administrative Record?

The Administrative Record generally consists of all of the information before a claim adjudicator at the time of the decision to deny health benefits or coverage at either the initial denial stage or at the appeal. It is generally known as the claim file and "all documents, records, and other information relevant to the claimant's claim for benefits." 29 C.F.R.§2560.503-1(h)(2)(ii). Relevant documents are also those which (a) were relied on in making a benefit determination; (b) were submitted, considered or generated during the course of making a benefit determination; (b) were submitted, considered or generated during the course of making the benefit determination, regardless of whether relied upon; (c) constitute a statement of policy or guidance for the plan regarding the denied benefit for the claimants diagnosis, regardless of whether such advice or statement was relied on in making the benefit determination and (d).demonstrates compliance with the administrative processes and safeguards designed to verify that the claim determinations are made in accordance with governing plan documents. 29 C.F.R. §250.503-1(m)(8)(i)-(iv).

The denial letter will likely make a vague reference to the claimant's right to request pertinent plan documents. The claimant or the claimant's advocate needs to do more than just "parrot" the words back to author of the letter less they run the risk of only receiving a copy of the benefit plan as opposed to a claim file and other relevant documents. In other words, you must ask for the claim file, a claims manual, emails to and from the author of the denial letter.

It is extremely rare when a Court will allow an administrative record to be "supplemented." Indeed, the First Circuit cautions that "some very good reason is needed to overcome the strong presumption that the record on review is limited to the record before the administrator." Liston v. Unum Corp. Officer Severance Plan, 330 F.3d 19,23 (1st Cir. 2003).

  1. Is Discovery allowed in ERISA litigation?

Although the text of ERISA does not preclude discovery, trial courts in the First Circuit have generally been reluctant to allow "typical" discovery that other non ERISA litigants utilize in contract disputes. Standard ERISA discovery that is routinely allowed in the First Circuit is the obtaining of a copy of the administrative record (i.e. claim file) before the claim adjudicator at the time of the last denial of benefits as well as a copy of all Plan documents.

District Courts in the First Circuit have allowed "targeted" discovery in ERISA benefit litigation via document production of non claim file documents such as a claims handling guidelines/manuals.. Occasionally, depositions are allowed as well. ERISA group disability cases are much more robust with judicial rationale of when and when not ERISA discovery is permissible beyond the administrative record. See Ardolino v.Met. Life Ins. Co., U.S. Dist. LEXIS 14318*6-11 (D.Mass. 2001) (discovery of training materials and claim procedures); Glista v. Unum Life Ins. Co. of Am., 378 F.3d 113 (1st Cir. 2004) (discovery claims and procedure manuals and limited depositions allowed) ; Lowell v. Drummond, U.S. Dist. LEXIS 3326* at 8 (D. Me. 2004) ( allowing discovery of relationship between plan administrator and contract administrator); Cannon v. Unum Life Ins. Co. of Am., 219 F.R.D. 211, 216 (D.Me. 2004) ( discovery allowed of administrative precedent concerning other claims regarding related illnesses); Sansby v. Prudential Ins. Co., 2009 WL 799418 (D.Mass. 2009) (allowing discovery of claims manuals and training guides, and relationship between insurer and Independent Medical Examiner service); Grady v. Hartford Life & Accident, 2009 WL 961233.(D.Me. 2009) (allowance of discovery concerning relationship between insurer and third party reviewer)..

  1. What is Preemption?

ERISA contains a very broad preemption provision at section 514(a) that essentially negates "any and all States laws" insofar as they "relate to" the benefit plan, its administration or the denial of the benefit claim. Narrow exceptions are allowed for state laws that "regulate insurance" as the Supreme Court has defined that term. The practical consequence of ERISA preemption is that state common law and statutory causes of action such as breach of contract, emotional distress, bad faith, 93A and 176D claims in Massachusetts are all preempted no matter how reckless or wrong an underlying claim decision is or how much damage the claimant has incurred as a result of a wrongful claim denial.

  1. What is the Standard of Review/Discretionary Authority?

When congress enacted ERISA in 1974, it did not provide courts with a judicial standard for reviewing a claims administrator's decision to deny benefits. The Supreme Court stepped into this legislative void in 1989, however, and held that a claim examiner's decision should be reviewed de novo "unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan," in which case the decision is reviewed for "abuse of discretion." Firestone v. Bruch, 489 U.S. 101, 115 (1989). In order to show that a decision to deny benefits constituted an abuse of discretion, the party challenging the decision has to show that the decision was not only wrong, but also "arbitrary and capricious."

  1. What is a Conflict of Interest Analysis?

The Conflict of interest analysis is warranted when the entity that makes the health claim benefit decision is also the funder of any benefit payment. The Supreme Court addressed this issue in 2008 in Glenn v. Metropolitan Life, 128 S.Ct. 2343 (2008) and the First Circuit recently opined on this issue, post Glenn, in an ERISA group disability case,Denmark v. Liberty Life Assur. Of Boston, 2009 WL 1219438 (1st Cir. 2009).

In Glenn, the Supreme Court that lower courts should take note of structural conflicts, where an employer or insurer, is in the position of both adjudicating claims or approving or denying benefits. Glenn, 128 S.Ct. at 2348-50. In regards to the question of "What weight a judge should give to a structural conflict of interest?," the Glenn Court noted that the conflict factor should be weighted by a lower court judge and that when "relevant factors are equal, the conflict of interest may serve as a tie breaker. Id.

The Glenn Court described the type of evidence that might impact the weight accorded to an identified conflict of interest:

"The conflict of interest at issue here, for example, should prove more important (perhaps of great importance) where circumstances suggest a higher likelihood that it affected the benefits decision, including, but not limited to, cases where an insurance company administrator has a history of biased claims administration. It should prove less important (perhaps to the vanishing point) where the administrator has taken active steps to reduce the potential bias and to promote accuracy, for example, by walling off claims administrators from those interested in firm finances, or by imposing management checks that penalize inaccurate decision making irrespective of whom the inaccuracy benefits."

Id. at 2351.

In May 2009, the Denmark Court revisited the structural conflict of interest in the First Circuit post Glenn. The DemarkCourt "retired" its market forces rationale used in previous First Circuit ERISA "conflict" decisions by noting the (1) "duty bound" need to "inquire into what steps a plan administrator has taken to insulate the decision making process against the potentially pernicious effects of structural conflicts and (2) the need to acknowledge that "in cases in which a conflict has in fact infected a benefit denial decision, such a circumstance may justify a conclusion that the denial was itself arbitrary and capricious (and, thus, an abuse of discretion)." Denmark at 2009 WL 1219438 at *7.

The significance of the conflict of interest analysis is its potential to practically erode a grant of discretionary authority to a plan administrator. In other words, the greater the conflict, the more apparent the untoward behavior by the insurer or employer in denying benefits, the greater the likelihood of the claimant proving that the denial was arbitrary and capricious.

B. Survey of ERISA/Health Law Cases in the First Circuit Between 2000 and 2008

(1.) ERISA Health Plan Lawsuit Time Limitations

Island Victor Residential Treatment Center v. Blue Cross/Blue Shield of Massachusetts, 548 F.3d 24 (1st Cir. 2008) Court enforces health insurance contract's express language barring suit after two years from final external review, as opposed to 6 year breach of contract limitations period in Massachusetts or 3 year limitations period in Colorado, since it was not unreasonable and complied with MGL c. 176A§8(c).

Ayotte v. Matthew Thornton Health Plan, 2004 WL 1447875 (D.N.H.) Court enforces employer's health plan's one year limitation period on lawsuits for denied reimbursement for surgery paid for by employee since it was "reasonable".

(2.) ERISA Preemption

Gallagher v. Cigna Healthcare of Maine, 538 F.Supp.2d 286 (D.Me. 2008) Wife of deceased husband brings multiple state law and statutory claims against insurer and its medical director in connection with the insurer's denial of continual care for decedent in a skilled nursing home following the amputation of his leg stemming from advanced diabetes. At the time of the denial of continued care, husband still had an open leg wound and he was discharged home to his wife's care. He developed sepsis one month later and died the same day he was a admitted to the hospital. Court holds that Maine common law and statutory causes of action brought by spouse of deceased employee for denial of skilled nursing care benefits against insurer preempted by ERISA.

Partners Healthcare System v. Sullivan, 497 F. Supp 2d 29 (D.Mass. 2007) Employer brings suit against employee who filed discrimination suit with MCAD and against MCAD to enjoin MCAD proceeding. Heterosexual employee filed complaint because employer offered employee benefits to unmarried same-sex domestic partners of its employees but not to unmarried heterosexual domestic partners. Court denies MCAD and employees Motions To Dismiss Employer/Plan's claims that dispute is governed by ERISA and requires preemption of state law claims

Perotti-Johns v. Wal-Mart, 2006 WL 1911595 (D.N.H.) NH wage statute and common law claims preempted in suit against employer for failure to properly allocate premiums towards health care coverage.

Childrens Hospital Corp v. Kindercare Learning Centers Inc., 360 F.Supp. 2d 202 (D.Me. 2005) Defendant/employer represented to the plaintiff/hospital that healthcare services that it provided to defendants employee would be covered services under its self insured group health plan. The services were not covered and the hospital was not paid. The hospital sued the defendant employer and its health plan administrator for fraud and negligent misrepresentation. Employer/defendant moved to dismiss Hospital's claims under ERISA. Court holds that state law claims are not preempted under ERISA
because the state law claims were brought be an independent third party healthcare provider (not an ERISA participant or beneficiary) against an insurer or plan administrator for its misrepresentation regarding the existence of health care coverage.

Mascucci v. Chi, 203 WL 192165 (D.Mass. 2003) Wife's state law claims and claims for sexual assault against defendant/primary care physician in BCBS network and BCBS, the insurer for the husband's health plan, not preempted since the claims concerned the quality of benefits received as opposed to the denial of benefits promised under a group health plan. Complaint remanded to state court.

Hotz v. Blue Cross and Blue Shield of Mass. Inc., 292 F.3d 57 (1st Cir.2002) Employee's 93A and 176D claims against group health insurer for 3 month delay in approval of follow up therapy for removal of a cancerous tonsil, occasioned by her alleged worsening health, preempted under ERISA since the lawsuit challenges the "the process used to assess a participant's claim for a benefit payment under the plan."

Andrews-Clarke v. Lucent Technologies Inc., 157 F.Supp.2d 93 (D.Mass. 2001) State law claims of husband's estate and those of his wife and surviving children for wrongful death and failure to properly authorize treatment for medical and psychiatric services prior to the suicide of deceased husband preempted under ERISA.

Touhig v. Principle Insurance Group, 134 F.Supp.2d 148 (D.Mass. 2001) Employee's emotional distress and 93A claims against plan health insurer for denial of reimbursement for medical services for wife's breast cancer preempted.

Tompkins v. United Healthcare of New England Inc., 203 F.3d 90 (1st Cir.2000) Court finds no ADA violation for denial of health insurance claim for child beset by Trisomy 13 and state law claims preempted under ERISA. Plan's written language pledging to "comply" with state laws did not rise to a waiver of ERISA preemption.

Danca v. Private Health Care Systems Inc., 185 F.3d 1 (1st Cir. 1999) Group Health Plan participant, with history of mental illness, sues health insurer and utilization review firm in connection with their decision not to pre-certify her treatment at McClean Hospital where she had been successfully treated before. Individual is sent to Emerson Hospital and another facility where participant thought the care was inadequate. Participant is severely injured when she attempts suicide by self immolation. Plaintiff sues treating physicians at hospitals as well as insurance company and utilization review firm that denied precertification for admission to McClean. First Circuit holds that state law claims against insurer and utilization review firm completely preempted under ERISA because their "conduct was indisputably part of the process used to assess a participant's claim for a benefit payment under the Plan."

(3.) ERISA Standard of Review

Smith v. Blue Cross/Blue Shield of Massachusetts, 597 F.Supp.2d 214 (D.Mass. 2009) Denial of health care benefits upheld by two internal reviews and OPP review. Denial not arbitrary and capricious since Plan had discretionary authority and "structural conflict of interest" neutralized by OPP review.

(4.) Coordination of Coverage

Marquis v. Fairview Nursing Home et al., 2007 WL 2410368 (D.N.H. 2007) Dispute between two health plans as to who was the primary payer for health care services provided. Wife's employer sponsored healthcare plan determined to be "primary" as opposed to laid off husband's COBRA secured healthcare.

(5.) Failure To Exhaust Administrative Remedies

Perotti-Johns v. Wal-Mart, 2006 WL 1911595 (D.N.H.) ERISA claim dismissed without prejudice to allow employee to pursue administrative appeal not pursued prior to lawsuit.

(6.) Anonymity/Confidentiality

MacInnis v. CIGNA Group Ins. Co. of America, 547 F.Supp.2d 89 (D.Mass. 2005) Insured's cursory request for anonymity/pseudonym in pleadings to avoid stigma of a mental illness did not outweigh constitutional presumption to openness of judicial proceedings.

(7.) ERISA Plan As Proper Defendant

Maine Coast Memorial Hospital v. Sargent, 369 F.Supp.2d 61 (D.Me.2005) Employee's suit against employer's health insurer Harvard Pilgrim dismissed since the insurer was not the Health Plan administrator nor the Plan itself.

(8.) Subrogation

Mank ex rel. Hannaford Health Plan v. Green,
297 F.Supp.2d 297(D.Me..2003) Preliminary injunction granted against employee and her law firm to enjoin their transferring or spending settlement funds received by employee injured in MVA since Plan spent $141,355 in medical care and employee signed Right to Reimbursement/Recovery Agreement with the Plan.

  1. Survey of Select U.S. Supreme Court ERISA/Health Care Cases Since 2000

Sereboff v. Mid Atlantic Medical Services, 547 U.S. 356 (2006) The Sereboffs were injured in a car accident. The health insurer (Mid-Atlantic) for their employer paid medical bills totaling about $75,000. The Group Health Insurance plan had an "Acts of Third Parties" provision allowing the insurer to place a lien on any third party recovery realized by the Sereboffs. The Sereboffs eventually sued the tortfeasor and recovered a settlement of $750,000 and ignored two letters from the insurer seeking repayment of the $75,000 expended on their medical bills. The Court held that the insurer's actions were appropriate not because it was seeking to enforce a subrogation claim by equity but because it was seeking to enforce an equitable lien by agreement.

Aetna Health Inc. v. Davila , 542 U.S. 297 (2004) Individuals sued employer's group health plans under the Texas Health Care Liability Act ("the Act") alleging that they suffered injuries as a result of their plan administrators breaching of a "duty of care" by not authorizing coverage for particular health care services. Court holds that the claims under the Act are preempted by ERISA and not subject to the exception for state laws that regulate insurance.

Kentucky Assoc. of Health Plans v. Miller, 538 U.S.329 (2003) HMO, which had an exclusive provider network, sues state insurance commissioner seeking a determination that the Kentucky Health Care Reform Act ("the Act") and its "Any Willing Provider" provisions which prohibit Plan discrimination against providers willing to meet the terms and conditions of the plan, was preempted by ERISA. Supreme Court holds that the Act was a law that regulated insurance and was saved from preemption and makes a "clean break" from McCarron-Ferguson factors as an essential component of the analysis.

Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355 (2002) Employee/patient sues HMO under sate independent review statute seeking reimbursement for microneurolysis surgery. Illinois statute requires HMO to submit to external independent review when there is a disagreement with a patient's physician about medical services and for HMO to cover services deemed medically necessary if independent reviewer so concludes. Court holds that statute is "saved" from preemption by ERISA since it regulates insurance.

Pegram v. Herdrich, 530 U.S. 211 (2000) Employee/patient sued HMO and treating physician alleging medical malpractice, fraud and "breach of fiduciary duty" under ERISA. Trial court dismisses ERISA claim but is reversed by Circuit Court of Appeals. Supreme Court reverses Circuit Court, holding that dismissal of the ERISA claim was proper because mixed eligibility and treatment decisions made by HMO through its physicians were not fiduciary acts within the meaning of ERISA.