Health Administration Responsibility Project, Inc.
Harvey S. Frey MD PhD Esq., Director
552 12th St. Santa Monica, CA 90402-2908
(310) 394-6342 fax: (310) 393-2579
Comments to accompany the
ERISA Clarification Act of 2007
Sec. 101: Definition of "Benefits due under the terms of the plan"
One purpose of this section is to encourage employers to purchase health insurance from state-regulated insurers, rather than self-insuring, by offering them a safe harbor from employee litigation over medical care, if they do so.
Another purpose is to remove medical care litigation from federal courts, by declaring that ERISA is satisfied if the insured employer has paid his premiums, and to assure that medical care litigation is to take place in state courts, with the state-regulated insurer and/or providers as defendants.
It also assures that an employee benefit plan purchase insurance only from insurers licensed in and regulated by the state where the employee lives, to insure that members of ERISA-regulated plans receive no less protection from state laws than other citizens.
Sec. 102: Definition of "Equitable Relief"
The Supreme Court's engagement with ERISA remedy law got off to a bad start with some unwise dicta in the 5-4 decision in Massachusetts Mutual Life Insurance Co. v. Russell (473 US 134 (1985)), which suggested that ERISA was not much interested in providing individual relief, and minimized the option for remedying consequential injury under the authorization for "appropriate equitable relief" in section 29 USC §1132(a)(3) .
In Mertens v. Hewitt Associates, 508 US 248 (1993), Justice Scalia's 5-4 opinion construed the language of "appropriate equitable relief" in 29 USC §1132(a)(3) to excluded "compensatory damages," even though money damages had long been available in equity courts against trustees in actions to recover for breach of trust.
None of these limitations was present or even implied in the original ERISA bill, but are purely constructs of the Court, and indeed run directly counter to the stated intent of the bill..
Senator Jacob Javits, a main architect of ERISA, when presenting the Conference Committee report to the Senate, stated that the drafters "intended that a body of Federal substantive law will be developed by the courts to deal with issues involving rights and obligations under private welfare and pension plans." Thus, by authorizing "appropriate equitable relief," Congress meant for the federal courts to work out what was appropriate in the light of the purposes of the statute. Unfortunately, they never did this.
Accordingly, the current state of the law is that while the injured plan beneficiary may recover monetarily for "benefits due" under §1132(a)(1), he may not recover even traditional equitable remedies for consequential injury under either §1132(a)(2) or §1132(a)(3).
The purpose of this section is to correct this judicial error.
Sec. 103: Standard of Review
Until the Supreme court decision in Firestone v. Bruch, 489 U.S. 101, 115, (1989), the denial-of-care decisions of plan administrators were usually upheld, unless they were found to be "Arbitrary and Capricious", a very difficult hurdle for aggrieved beneficiaries to surmount. In that decision, the Court held that the arbitrary and capricious standard of review is often too lenient in that it "would afford less protection to employees and their beneficiaries than they enjoyed before ERISA was enacted."
They further stated: "a denial of benefits challenged under 29 U.S.C. 1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." De novo review gives no weight to the decision of the administrator. Of course, all plans were rewritten to confer such discretion.
What the decision failed to note is that the plan's decision-makers are Always laboring under a conflict of interest, being either employees or contractors of the organization which has to pay the claims. As such, the "Arbitrary and Capricious" standard is Never appropriate.
The purpose of this section is to accept this reality, and allow the courts to review disputes between the parties de novo, as they would any other dispute between adversaries.
Sec. 104: Jurisdiction
Consistent with the intention of this Act to move litigation over medical claims against state-regulated insurers to state courts, the jurisdiction rules are changed to allow this, with concurrent federal & state jurisdiction over medical claims against the Plan itself, leaving the Plan with the right of removal to federal courts.
Exclusive federal jurisdiction is retained for all other claims.
Sec. 105: Supersedure
No issue has caused the Supreme Court, lower courts, and plan beneficiaries more grief than the original ERISA definition of supersedure of "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan", which, as the Court stated in NY Blue Cross/Blue Shield v. Travelers: "The term ' relate to' cannot be taken to extend to the furthest stretch of its indeterminacy, or else for all practical purposes pre-emption would never run its course." It has been especially pernicious in its application to independent companies which gain protection from liability merely because of their "relation" to an ERISA plan, as first enunciated by the Court in Pilot Life v. Dedeaux,481 U.S. 41 (1987).
This section intends to alleviate this problem by establishing that the limits of preemption extend no farther than necessary to protect the assets of the plan. In particular, contracted state-regulated insurers will remain subject to state laws.
Sec. 106: Vesting
While ERISA goes to great lengths to preserve the rights of employees in their pension plans, it does nothing to preserve rights in health benefit plans, and this has resulted in egregious abuses, as in McGann v. H & H Music, 946 F.2d 401 (1991).
In that case, a plan had a benefit cap of one million dollars. An employee contracted AIDS, which required expensive treatment, upon which the employer amended the plan to reduce the cap for AIDS to $ 5,000. [sic]
The court stated that an employer has an absolute right to alter the terms of medical coverage available to plan beneficiaries at any time, even after they have contracted a disease which will prevent them from getting other insurance.
Congress must realize that employees, in reliance on their employee benefit plan, may forgo obtaining REAL insurance which can't be arbitrarily withdrawn at the whim of the payer.
In fairness to the Congress that passed ERISA, they probably could not have imagined that an employer could be so base. Now that we know, it is incumbent on us to correct this problem, at least for those employees whose illness has made them uninsurable, and for whom the deprivation of promised benefits may be a death sentence.
Sec. 107: Fiduciary Liability
The current law, while preempting State remedies, has no provision of its own for a plan member injured by illegal acts of a fiduciary to be compensated in any way. Though the law allows suits against fiduciaries, only the PLAN may be compensated for a fiduciary's misdeeds. This amendment merely adds the authorization for an injured plan member to be compensated by the fiduciary.
This is intended to cover the case in which an insurer or HMO is employed by a plan as administrator.