How to Talk to People About ERISA Health Insurance Denials

You Start with a Hug

We get calls regularly from people who are suffering from denied health insurance claims. Many of the insurance policies that should be covering these claims are provided by their employers. All employee benefit programs are subject to a federal law known as the Employee Retirement Income Security Act, or ERISA. In the ‘60s and early ‘70s, our federal government created certain protections for employee benefit plans after it became clear that many were poorly funded and never vested. However,  employer-sponsored health plans were somehow able to slither into protections that were initially designed for union pension funds.

Why not give employer-sponsored health plans these sorts of protections too?  Short answer: Because it allows them to deny your claim without consequence. Except in rare cases, the most you can recover in a lawsuit against your employer-sponsored health insurance company is the amount of your claim. If you’re an insurance company with two primary plans, you can either a) keep the money; or b) if A fails, keep the money for as long as you can—and the most anyone can reasonably recover from you for denying a claim is the amount of the claim itself. Game theorists would tell you that you should never have paid the claim in the first place.

Moreover, in State Court, policyholders’ lawyers have the opportunity to review documents relevant to the claim, take depositions of appropriate witnesses, and determine what happened that led to the denial so they can identify unfairness. A jury doesn’t want to hear about the minutiae of an exclusion in Appendix F; they want to hear about how Joe Adjuster claims to have spent an hour reading a single page of the insurance policy but somehow missed the word “not” by accident.

In ERISA cases, we cannot do any discovery. We cannot even use any documents that we did not provide to the insurance company before we filed suit. It’s like requiring the U.S. Army to hand over their plans before the battle even begins. If our team doesn’t follow the plan exactly—despite the fact that they’re now sitting there waiting for us—we cannot put in any evidence to respond to the lawsuit.

Oh, and you’re also forced into federal court. Why does that matter? Federal courts are more procedurally onerous and more friendly to the giant white shoe firms that have 17 people working on every file.  There are more deadlines to meet, and judges are more likely to dump your case because something wasn’t filed right. This translates to even more advantages for the larger players.

Clients often hope a jury of their peers is going to see through the insurance company’s tricks and rule in their favor. However, a judge – not a jury – will almost certainly decide the case based on a briefing by the parties. You’ll likely never even meet or see the judge who decides your fate, and you will not get the chance to tell your story to anyone. The judge should review whether you have made a strong enough argument in favor of insurance coverage for your situation and should then decide the case accordingly.

But nope,  the judge will never decide who is right and who is wrong! Instead, the judge reviews the insurance company’s decision to deny your claim on an “arbitrary and capricious standard.” Under this arbitrary and capricious standard, a plan administrator’s decision should not be overturned as long as (1) “it is possible to offer a reasoned explanation, based on the evidence, for a particular outcome,” (2) the decision “is based on a reasonable explanation of relevant plan documents,” or (3) the administrator “has based its decision on a consideration of the relevant factors that encompass the important aspects of the problem.”

What does that mean for us in English?  These three prongs are “or” prongs, which means that the insurance company’s decision is upheld (read as: we lose) if one of them is true even if the other two are not. So a court can conclude that Prong 1 is not met in a particular case: “I cannot find a reasonable explanation based on the evidence for the outcome that the insurance company reached here,” and nonetheless conclude that the administrator based its decision on a consideration of the relevant factors satisfying Prong 3, which means we still lose.  In what other universe can a judge find that there is no reasonable explanation for a party’s position and still find in their favor?

Wallace Law continues to take ERISA cases. We provide this resource to help educate people on why reasonable expectations about the outcomes of ERISA claims do not comport with the laws on the books. There is absolutely no reason why health insurance companies deserve ERISA protection; all this does is motivate senseless claim denials.

The ability to meaningfully challenge these decisions can be limited. We want our clients to go into an ERISA claim with a fair and advanced heads-up.