What sort of “medical treatment” triggers the pre-existing condition exclusion in an ERISA-governed disability policy?
Can taking over-the-counter vitamin supplements trigger the exclusion? YES.
Here’s the case of Kutten v. Sun Life Assurance Company of Canada, __ F.3d __, 2014 WL 3562784 (8th Cir. July 21, 2014) (pdf).
FACTS: Kutten had a progressive eye disease. In 1994, his doctor directed him to start taking daily 15,000 unit doses of an over-the-counter vitamin A supplement. This could slow, but not cure, this progressive disease which can lead to blindness.
In June 2010 Kutten’s employer bought a new policy for the ERISA-governed disability benefit. This new policy excluded pre-existing conditions, defined as a condition in which the employee “received medical treatment, care or services, …or took prescribed drugs or medicines for the disabling condition” 3 months before the start of the policy. Kutten applied for disability benefits. Sun Life concluded the vitamin A supplements triggered the pre-existing condition exclusion as “medical treatment” and denied the claim. Kutten sued.
ISSUE: Do vitamin supplements constitute “medical treatment” sufficient to trigger the pre-existing condition exclusion?
TRIAL COURT HELD: Plaintiff wins — vitamin A supplements are not a “medical treatment” because such use does not require the same medical intervention as “prescribed drugs or medicines.”
EIGHTH CIRCUIT COURT OF APPEALS: REVERSES (2-1 decision)
- “Drawing a sharp distinction between ‘prescribed drugs or medicines’ and ‘medical treatment’ is a virtually impossible task because ‘prescribed drugs or medicines’…are forms of ‘medical treatment.’” Op. at 5
- “[T]he ordinary meaning of the phrase ‘medical treatment’ would encompass Kutten’s vitamin A supplements. The supplements are ‘medical’ in the sense that they prevented or alleviated the progression of Kutten’s [eye disease and]… constituted a ‘treatment’ because it was the ‘manner,’ in fact the only manner, by which Kutten could ‘care for’ his condition.” Op. at 6.
Here is a recent news item showing the scope of the employee disability problem.
In a nutshell:
There are more disabled employees than ever. As of May 2014, the total number of Social Security disability beneficiaries in the United States hit an all-time high of about 11 million beneficiaries.
But fewer employees are covered with long term disability coverage. The number of U.S. workers with long-term disability coverage decreased 6% from 2009-2013.
- fewer employers are offering long term disability coverage: down from 220,000 to 214,000
- fewer employees have long term disability coverage: down from 34 million to 32.1 million
- more total number of employees in the U.S. workforce: up 6.6 million
An excellent article out of the July 17, 2014 Portland Press Herald summarizes the issue. http://www.pressherald.com/2014/07/17/employers-dropping-long-term-disability-coverage/
You already know that impairment can be assessed through a Functional Capacity Evaluation (FCE).
But what happens when the claimant refuses to perform tasks requested, or does not try hard enough during the FCE?
Can you deny the claim for “lack of cooperation”? Sometimes YES.
Here’s the case of Ortega-Candelaria v. Johnson & Johnson, __ F.3d __, 2014 WL 2696725 (1st Cir. June 16, 2014).
FACTS: In June 2003, plaintiff applied for ERISA-governed disability benefits because of back pain, anxiety and panic attacks. He failed to cooperate in a number of Functional Capacity Evaluations (FCEs) conducted by a physical therapist. Plaintiff “declined all lifting, carrying, pushing, pulling and climbing activities” and gave a “sub-maximal effort” on tasks. The Plan discontinued benefits “due to his lack of cooperation in the evaluation process.” Plaintiff sued, claiming a doctor had to conduct the FCE. The trial court granted summary judgment for the plan.
FIRST CIRCUIT HELD: AFFIRMS SUMMARY JUDGMENT.
- The results of the FCE “‘suggest[ed] very poor effort or voluntary sub maximal effort, which is not necessarily related to pain, impairment or disability.’” Op. at 10.
- “He failed 86% of the validity criteria…Video footage supports the conclusion that [plaintiff] was not cooperative.” Op. at 19.
- “The Plan terms require that [plaintiff] cooperate during evaluations of his disability status; without such cooperation the plan administrator [can reduce or terminate benefits].” Op. at 20.
- The decision to terminate benefits due to lack of cooperation was not an abuse of discretion. Op. at 20.
- An FCE evaluates a medical condition; a physician is not required for the test to be used in assessing impairment. Op. at 23.
Medical providers often have a patient/ERISA plan participant assign rights under an ERISA health care plan to allow the medical provider to seek payment for medical services provided.
But what if the patient/plan participant never was billed for the medical services? What rights are there to assign?
Is that an effective assignment? YES.
Here’s the case of Univ. of Wisconsin Hospital and Clinics, Inc. v. Aetna Life Ins. Co., __ F.Supp. 2nd __, 2014 WL 2565284(W.D. Wis. June 6, 2014) (Derivative standing allows hospital to obtain reimbursement for medical services provided).
FACTS: ADP provided a health plan to employees, including James Vana. UW Hospital performed a heart catheterization for Vana, costing $14,000. Aetna paid $1,919 of the bill, but refused to pay the rest because Vana and the hospital failed to get precertification for the procedure.
Vana assigned his rights to reimbursement to UW Hospital, and the Hospital sued for reimbursement. Aetna argued: UW Hospital lacks standing to sue because Vana never received a bill.
ISSUE: Whether the hospital lacked standing to sue because the patient/plan participant never was billed for medical services, and thus had no rights to assign?
DISTRICT COURT HELD: Assignment effective — hospital had “derivative standing.”
- UW Hospital had standing to sue. “[D]erivative standing. . .[furthers] the purposes of ERISA ‘to protect the interests of participants in employee benefit plans and their beneficiaries.’” Op. at 8-9.
- “If provider-assignees cannot sue the ERISA plan for payment, they will bill the participant or beneficiary directly for the insured medical bills, and the participant or beneficiary will be required to bring suit against the benefit plan when claims go unpaid.” Op. at 9 (citations omitted).
- “[P]roviders …are better situated and financed to pursue an action for benefits owed for their services [and] the interests of ERISA participants and beneficiaries are better served by allowing provider-assignees to sue ERISA plans.” Op. at 9 (citations omitted).
- Aetna’s denial of reimbursement was arbitrary and capricious because: (a) Vana would “plainly be entitled to benefits under the plan”; (b) Aetna failed to articulate “to UW Hospital a legitimate reason for its denial”; and (c) Aetna “interpreted its policy in an unreasonably contradictory manner.” Op. at 10.
You already know that the Defense of Marriage Act (DOMA), which prohibited recognition of same-sex marriages, was declared unconstitutional. United States v. Windsor, 133 S.Ct. 2675 (2013)
In states recognizing same-sex marriages, ERISA benefits, like life and disability benefits provided through insurance contracts, will most likely be viewed as covering a same-sex spouse.
But does the same apply to self-funded ERISA plans? Maybe not.
Here’s the case of Roe and Doe v. Empire Blue Cross Blue Shield and St. Joseph Medical Center, __ F.Supp. 2d __, (S.D.N.Y May 1, 2014).
FACTS: New York recognizes same sex marriages, and Jane Roe and Jane Doe were married. St. Joseph Medical Center’s health plan for employees is self-insured and states: “Same sex spouses and domestic partners are NOT covered under this plan.” Roe sought to add Doe to the plan, which was rejected. Plaintiffs sued claiming defendants violated Section 510 of ERISA entitled “Interference with protected rights.”
ISSUE: Whether ERISA prohibits a private employer from excluding same-sex spouses?
DISTRICT COURT HELD:
- “ERISA…is not a dictator of plan terms.” Op. at 10.
- ERISA does not contain an anti-discrimination provision “because other federal laws already proscribed such discrimination.” Op. at 10.
- An ERISA plan “may, for example, choose not to provide benefits to spouses at all.” Op. at 11.
- The clear import of United States v. Windsor [133 S.Ct. 2675 (2013)] is a shift in federal policy toward enforcing state laws that recognize same sex marriage. Op. at 13.
- The exclusion [‘Same sex spouses and domestic partners are NOT covered under this plan.’] does not violate Section 510 of ERISA as it is currently promulgated.” Op. at 14 (Emph. added).
NOTE: Look for self-funded plans, containing an exclusion against same-sex spouses, to rely on this case. Plans with that exclusion will argue that ERISA does not require employers to cover same-sex spouses under the plan.
Sometimes determining the correct beneficiary for ERISA-governed life insurance benefits can present real challenges.
Can the deceased’s will prove the deceased’s intent designating the correct beneficiary? It depends on the language of the will.
A Plan administrator, vested with discretion, can choose to excuse technical errors in beneficiary-designation forms or it can elect to enforce strictly the terms of the plan.
Here’s the case of Hall v. Metropolitan Life Insurance Company, __ F.3d__ (8th Cir. May 8, 2014)(PDF).
FACTS: Dennis Hall designated his son as sole beneficiary for ERISA-governed life insurance benefits. In November 2010, however, Mr. Hall completed and signed, but never submitted, a new beneficiary designation claim form naming his wife, Jane Hall, as sole beneficiary.
After Mr. Hall died in 2011, Ms. Hall claimed she was entitled to the life benefits. She claimed Mr. Hall lacked adequate time to submit the approved form. She presented Mr. Hall’s will as evidence that he intended for her to be the sole beneficiary. The Plan vested Met Life with discretion in determining eligibility. Met Life denied her claim. Ms. Hall brought suit.
HELD: Did MetLife abuse its discretion by refusing to recognize the deceased’s will in determining who was the beneficiary?
- “MetLife reasonably determined that the will was inadequate to effect a change in beneficiary.” The will “did not expressly address the distribution of assets that were not part of the estate.” Op. at 6.
- The November 2010 form had no effect because “the Plan expressly required Dennis to submit a written beneficiary-change request within thirty days of signature for it to be effective, and he failed to do so.” Op. at 6.
- Conflict between language in the Plan and Summary Plan Description (SPD) did not matter. The Plan contained the thirty day requirement but the SPD was silent on this requirement. “The SPD’s silence on this point does not trump the Plan’s clear requirement.” Op. at 6.
- Doctrine of Substantial Compliance. “An insured substantially complies with the change in beneficiary provisions of an ERISA life insurance policy when the insured: [a] evidences his or her intent to make the change and [b] attempts to effectuate the change by undertaking positive action which is for all practical purposes similar to the action required by the change of beneficiary provisions of the policy.” Op. at 8.
- “[Even though] a court may decide as a matter of common law to excuse technical non-compliance with the terms of an ERISA plan, [that] does not mean an administrator with discretion under an ERISA plan is forbidden to enforce strict compliance with plan requirements.” Op. at 8 (Emph. in original).
- “In exercising its discretion, an administrator might choose to excuse technical errors in beneficiary-designation forms…or it might elect to enforce strictly the terms of the plan…. MetLife reasonably exercised its discretion in rejecting [the will and the November 2010 beneficiary form].” Op. at 9.
- “[A]llowing an administrator to require technical compliance with policy provisions protects the administrator from ‘paying the wrong person and being forced to pay twice.’” Op. at 10.
You already know that plans that contain “discretionary language” should enjoy a more deferential review by the trial court.
But when the plan administrator decides and funds the benefit decision, courts view this as a “structural conflict” and impose additional expectations on the claims process.
Sometimes de novo review isn’t all bad.
Here’s the recent case Inciong v. Fort Dearborn Life Insurance Company, __ Fed. Appx. __, 2014 WL 1599513 (9th Cir. April 22, 2014)(Court affirms benefit denial, under de novo standard of review, even though there was no Independent Medical Exam).
This opinion also has some other “pearls” regarding vocational assessments and consideration of Social Security Administration decisions.
FACTS: Inciong received disability benefits under an ERISA-governed plan for fifteen (15) years. Then, Fort Dearborn obtained evidence that Inciong’s condition had improved, and terminated benefits. The trial court reviewed the termination of benefits under de novo review, and affirmed the termination because Inciong failed to “provide sufficient objective and quantifiable evidence to support his claim of total disability.” The policy did not specifically mention a requirement of “objective, quantifiable evidence of disability.” Inciong appealed.
NINTH CIRCUIT HELD:
- Fort Dearborn presented evidence that Inciong’s “level of activity ha[d] actually improved over time.” Op. at 3.
- Inciong claimed he was disabled because no one would hire him after being out of the workforce for 15 years. But the policy’s definition of disability “does not require a showing that Inciong would in fact be hired for a specific job; it only requires a showing that jobs exist that Inciong was qualified for and capable of doing.” Op. at 4.
- IME Required? When a court performs de novo review, an Independent Medical Exam is not required. (When a court reviews a decision under the arbitrary and capricious standard, and the plan has a structural conflict, then a court may question the “thoroughness and accuracy of a benefit decision” if the plan relied only on a “pure paper review.”) Op. at 5.
- Failing to explain away the Social Security decision not a problem. “Fort Dearborn terminated benefits fifteen years after initially granting them, based on evidence that Inciong’s condition had improved. There is no evidence that the Social Security Administration has conducted a recent review of its determination. Op. at 5.
Does the claim administrator waive the timeliness defense if it failed to deny the claim on that basis during administrative review? YES!
Here is a nice case that summarizes the point, and the status of waiver in the circuits. Becknell v. Severance Pay Plan of Johnson and Johnson, 2014 WL 1577723 (D. N.J. April 21, 2014).
FACTS: Plaintiff became disabled on April 16, 2008 and made a claim for short term and long term disability benefits under the self-funded ERISA plan. On October 25, 2012 Plaintiff made a written claim for severance benefits under the ERISA plan. The request was four years late. The plan denied the severance benefit, but not because it was untimely. Instead, the claim was denied because Plaintiff’s termination did not result from one of the severance events in the plan.
ISSUE: Did the ERISA plan waive the timeliness defense because it was not asserted in the administrative process?
- “Some circuits prevent a plan administrator from relying on a defense…that was not articulated in the administrative proceedings[.]” Op. at 6. (The court cites cases from the 1st, 2nd 5th, 8th 9th, 10th circuits.)
- “Other circuits have acknowledged that waiver is possible in some factual circumstances.” (The court cites cases from the 4th, 7th, 11th circuits). Op. at 7.
- “Defendants wish to preclude Plaintiff from asserting his claim based on a timeliness defense that they failed to raise during the administrative proceedings. The fact remains that ‘[t]he time to deny Plaintiff’s claim on that basis of untimeliness has come and long gone.’” Op. at 12.
Are you seeing more ERISA Plaintiffs asserting claims seeking penalties for delayed production of ERISA-related documents?
29 U.S.C. 1132(c)(1) allows the Court to impose penalties of up to $110 per day for delays in producing documents requested in writing.
But are those written requests for ERISA documents sufficiently detailed to create a risk of penalties?
Here’s the case of Cultrona v. Nationwide Life Insurance Company, __ F.3d __ (6th Cir. April 9, 2014) [PDF] (Court requires Plaintiff’s written request for ERISA documents to give plan administrator “clear notice” of the documents requested).
FACTS: After her husband died, Cultrona sought accidental death benefits from the ERISA-governed plan. The claim was denied and she appealed. On November 18, 2011, Cultrona’s counsel requested that the Plan Administrator provide “all documents that you contend prove that [the insurer] provided notice of Amendment No.1…and all documents comprising the administrative record and/or supporting Nationwide’s decision.” The Plan Administrator eventually produced the accidental death policy on June 12, 2012.
The trial court imposed an $8,910 penalty against the Plan Administrator under 29 U.S.C. 1132(c)(1) for the delay in producing the policy.
ISSUE: Whether Plaintiff’s request for documents was specific enough to alert the plan administrator to produce the insurance policy?
SIXTH CIRCUIT HELD:
- The trial court’s decision to impose penalties for delay in furnishing ERISA documents is reviewed under the abuse of discretion standard. Op. at 9.
- 29 U.S.C. 1024(b)(4) provides the list of documents a plan administrator must furnish upon written request. “If a plan administrator fails to respond … within 30 days, then the district court may in its discretion impose a penalty…of up to $110 per day.” Op. at 9.
- Whether the written request is specific enough. The Court adopts the “clear notice” standard: “[T]he key question under the clear notice standard is whether the plan administrator knew or should have known which documents were being requested.” Op. at 10.
- Plaintiff’s counsel’s “broadly phrased” request should have alerted the plan administrator that this request included the accidental death policy because that was the key document supporting its decision to deny the claim. Op. at 10.
- The court did not abuse its discretion in awarding $55 per day penalty rather than the maximum $110 per day because there was a “lack of prejudice” caused by the delay. Op. at 11.
Key Take Away:
- Consider whether the request for documents provides “clear notice” of the documents requested.
- Reduce the award from $110 per day by arguing that the delay caused no prejudice.