Supreme Court acknowledges insurers' conflict of interest
MetLife V. Glenn: The Court Addresses A Conflict Over Conflicts In ERISA Benefit Administration
by Timothy Stoltzfus Jost
Health Affairs
September 3, 2008
In its June 2008 decision in MetLife v. Glenn, the Supreme Court held that federal courts reviewing claim denials by Employee Retirement Income Security Act (ERISA) employee benefit plan administrators should take into account the fact that plan administrators (insurers or self-insured plans) face a conflict of interest because they pay claims out of their own pockets and arguably stand to profit by denying claims.
As a practical matter, the cost of health benefits to employers and their value to employees are first determined when the employer settles on a benefit, cost-sharing, and premium package for a benefit year. But it is also determined daily as plan administrators (either insurers, self-insured plans, or third-party administrators) make benefit determinations. Although plan coverage is sometimes clear, claims adjudication often involves application of vague terms such as “medically necessary” or “experimental” care to specific situations. Approximately 1.9 million claims are denied by employee benefit plans each year. Each denial potentially decreases the cost of coverage—immediately for self-insured and prospectively for insured employers (which usually pay an experience-rated premium). But denials also potentially decrease the value of coverage to the individual employee.
Claim determinations are ultimately reviewable in the federal courts. The courts’ approach to reviewing these determinations could, therefore, affect the cost of employee benefits. If, on the one hand, courts routinely overturn claim denials, the cost of coverage will increase, not just because plans will lose more appeals, but also because plans will have to litigate more appeals of adverse determinations as members see their chances of appeal improve. Moreover, plans will likely approve more claims initially instead of risking litigation. An increase in the cost of coverage may in turn lead to more employers’ abandoning coverage. On the other hand, if courts routinely defer to plan determinations, upholding most, plans will in all likelihood be more aggressive and confident in denying claims. This could make coverage more affordable but also put employees at risk.
Interpreting an earlier ERISA decision, the Court articulated the question as to what extent courts should defer to the decision of the plan administrator when the administrator faces a conflict of interest because it is essentially paying the claim out of its own pocket and stands to profit if the claim is denied. The Court decided that this conflict must be taken into account as a “factor” in judicial review. This paper analyzes the Court’s decision, the background of the decision, and its potential effect on American health policy.
http://content.healthaffairs.org/cgi/content/abstract/hlthaff.27.5.w430
Comment:
By Don McCanne, MD
In this important decision the Court affirmed the obvious. Employer-sponsored plans and their administrators, whether private insurers or self-insured plans, have a conflict of interest when making benefit decisions. Denial of claims benefit the employers and/or insurers, and approval of claims benefit the employees. On this, the justices were in unanimous agreement.
Much of the criticism of private insurance has been directed toward the flagrant, egregious abuses in the individual insurance market. Far more is wasted on administrative services that are designed to weight the conflict of interest heavily in favor of the insurer at the cost of patient-beneficiary. Those who support reform based on private insurance acknowledge that the individual plans would have to be replaced with options that more closely resemble employer-sponsored plans. Is that wise from a health policy perspective?
An important implication of this Supreme Court decision is that costs for employer-sponsored plans will likely increase. Legal costs may rise because of an increase in challenges to claims decisions, which may cause an increase in benefit costs because of employer/insurer decisions to avoid the effort and legal costs of challenging claims for non-beneficial and non-contract services.
Would a single payer national health program eliminate the conflict of interest between the payer of benefits (the government) and the recipient of benefits (the patient)? Of course not. But, as a society, this conflict should work to our benefit.
Our own public program would have a mission to finance all necessary care for all of us. At the same time, it would have a responsibility as stewards of our tax funds to not waste money on non-beneficial services and products. Although disputes would be inevitable in marginal circumstances, the decisions would be based on balancing the needs of the patient with efficiency in the use of our public funds.
Employers would no longer have to face the awkward decisions of saving money by denying care for their employees.
In contrast, private insurers welcome the opportunity to reduce their overhead by denying care to patients. That might be good business, but it’s terrible health policy.