ReviewThe Conflict of Interest Inherit in Administrative Review
and the Ineffectiveness of the Current Standard of
The Employee Retirement Income Security Act, better known as ERISA, has been a major issue in healthcare litigation since its inception in 1974. ERISA governs any claim centering on health insurance, disability insurance, or any other employer provided benefits. ERISA affects many aspects of the American legal system, from inter-state commerce to bankruptcy, and particularly insurance and healthcare law. ERISA contains clauses for both the procedure and substance of the law and is often preemptive over state law. There is a great deal of misunderstanding and confusion surrounding the application and coverage of ERISA, which has made litigation even more complex and hazardous. Understanding the basic procedure, coverage and intricacies of ERISA’s implications and formalities is essential for any attorney practicing insurance or healthcare law.
This past year I was personally involved in an ERISA litigation suit. This suit involved a woman working for The Mutual of Omaha Companies. She was denied a breast reduction surgery by her employer-run health plan. This surgery had been recommended by her physician and deemed “medically necessary.” However, her health insurance plan exempted all forms of breast surgery, not involving cancer, from coverage regardless of their necessity. Our client, the insurance participant (“client”) then came to our office to see what assistance we could provide in helping her obtain coverage for this surgery.
At this point, our office thought that the chances for recovery of any benefits were very slim due to the fact that the health insurance policy specifically excluded breast reduction surgery from coverage. However, we told the client we would look into the possibility of recovery. With very little investigation we were able to discover that although the health insurance policy had excluded breast reduction surgery, Mutual of Omaha had previously granted coverage to three of the exact same types of surgery to more senior Mutual of Omaha employees within the past year. Thereafter, our case quickly became a question of whether the healthcare administrator was precluded from denying coverage for breast reduction surgery, when it had granted coverage for the same on three previous occasions. The U.S. District Court held that the plan administrator was precluded from denying the claim, when they had granted coverage in the exact same medical circumstances on three previous occasions. This case is currently on appeal with the Eighth Circuit.
The issue that I found most compelling while researching ERISA procedure was the administrative appeal process, and the standard of review to which the U.S. District Court must adhere. The U.S. District Court was required to review a case on appeal, after the exhaustion of administrative remedies, only for an abuse of discretion, so long as discretion had been granted to a plan administrator within the plan. In our suit, the health insurance policy did contain a clause that gave the administrator discretion to interpret and review, therefore our burden of proof was to convince the U.S. District Court judge that the administrator had abused his discretion and denied coverage beyond what the administer believed were the policy guidelines. This is an extremely high burden of proof and essentially gave 95% of the power of review to the administrator, which happened to be a panel of senior Mutual of Omaha employees. This seems to me as if the proverbial wolves were guarding the hen house, by placing the persons who benefit from the denial of a claim in charge of the appeal from a claim that a participant thought was unfair. Since I do not understand the reasoning behind this rule of procedure, I will analyze the reasoning that the U.S. Supreme Court provided for allowing such a high burden of proof for claimants in ERISA actions.
II.Overview of the Employee Retirement Income Security Act and Procedure
ERISA was designed to secure employee pensions and benefits for their future use by employees. Enacted in 1974, ERISA was a response to concerns about fraud and abuse within private employee benefit programs. See 29 U.S.C. 1001.ERISA established federal uniform duties and obligations for benefit plan administrators to ensure the preservation of employee pension funds and benefit