The plight of the uninsured has caused all the recent ruckus over health care reform. At least if you’re one of the lucky ones who have health insurance through your employment, you have some security. You have a binding insurance contract with an insurance company, and among your rights is the ability to take that insurance company to court if they cheat you out of promised benefits, right?
Well, not really.
Under the Employment Retirement Income Security Act (ERISA), you can take them to court (usually) but once you get there you’ll find an Alice-in-Wonderland amalgam of ridiculous rules. The worst is that if you prove the insurance was wrong to deny your claim – you lose.
Here on Earth when you sue your insurance company the way they win the case is to prove their claim denial was correct. If you go to the time, effort and expense to prove in court that your insurance company was wrong – just wrong – to deny your claim, you win the case.
But that’s not how ERISA generally works. Under ERISA it’s not enough to prove they were wrong to deny the claim; you have to prove they were ridiculously, absurdly wrong. That’s ridiculous and absurd.
In ERISAworld, we pretend insurance companies are like federal courts or trustees, and we grant their claim denials the sort of deference ordinarily accorded to a ruling by a judge. The courts, in the vast majority of cases, apply a deferential “abuse of discretion” standard when they consider an insurance company’s denial of, say, health care or disability benefits. An illustration of how big a difference it makes might be useful here, so join me in a review the Eleventh Circuit’s Doyle v. Liberty Life Insurance Company of Boston, which is reported at 542 F.3d 1352 (11th Cir. 2008).
In Doyle, the court described how so-called “abuse of discretion review,” the usual ERISA rule, 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? 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.
OK, so as long as the insurance company was not “vested with discretion,” then if it is wrong it loses. So far so good. But 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 to deny a claim was wrong then do what? After paying some lip service to the effect of a conflict on interest on the insurance company’s part, 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.
So if you get your insurance through your employment, welcome to the ranks of the uninsured. You don't have insurance at all ... you only think you do.