California Insurers Asked to Submit Diversity Information About Boards of Directors

by Robert Hogeboom & Samuel Sorich

The California Department of Insurance (“CDI”) has issued a notification to insurers with 2013 written premiums of $100 million or more in California to complete and submit the CDI’s Governing Board Diversity Survey.

Among other questions, the Survey asks the insurers to report on the number of directors who identify themselves as a man or a woman, how many are comprised from seven different ethnic group categories, and how many are a disabled veteran, lesbian, gay, bisexual, and/or transgender.

Completed surveys, including an affidavit on the data, are to be submitted to the CDI by August 12, 2014. All surveys will be posted on the CDI website by October 1, 2014. The notification advises that survey results will be posted on the CDI’s website and that “[f]ailure to submit a complete report or submit a report by the due date will be noted,” which we presume will be noted on the CDI website.

The Survey stems from a recommendation put forward by the CDI’s Diversity Task Force which was created shortly after the Commissioner office.

Several existing statutes require insurers to submit reports or respond to data calls on other somewhat related topics:

Insurance Code section 926.2 requires each insurer admitted in California to provide information on all its community development investments and community development infrastructure investments in California.

Insurance Code section 926.3 requires each admitted insurer writing $100 million or more in annual premiums in California to file policy statements expressing goals for community development investments and community development infrastructure investments.

Insurance Code section 927.2 requires each admitted insurer writing $100 million or more in annual premiums in California to submit reports on minority, women, and disabled veteran-owned business procurement efforts.

In contrast, there is no statute which specifically states a requirement to report on the diversity of insurance companies’ boards of directors. The department’s notification to insurers does not cite the statutory authority for the Survey.

For copies of the report or questions, please contact Robert W. Hogeboom at rhogeboom@bargerwolen.com or (213) 614-7304.

Originally posted to Barger & Wolen's Insurance Litigation & Regulatory Law blog.

Ninth Circuit Takes Narrow View of ERISA Surcharge Remedy

In Gabriel v. Alaska Electrical Pension Fund, the Ninth Circuit ruled that a pension plan participant could not be “made whole” by using the equitable remedy of surcharge to recover pension benefits he was erroneously told he would receive. 

As explained below, the Alaska Electrical opinion is significant because it clarifies and limits the reach of equitable remedies, such as surcharge, in ERISA cases under the Supreme Court’s 2011 decision in Cigna v. Amara. In doing so, the Ninth Circuit declined to follow decisions in the Fourth, Fifth and Seventh Circuits that suggested a broader application for equitable remedies under Amara

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MICRA's Big Deception

Michael Newman authored an op-ed for the May 29th edition of the Daily Journal to speak out against what he believes is an initiative that will deceive California voters this coming November.  

Newman writes that the primary purpose of the Troy and Alana Pack Patient Safety Act is to alter MICRA, the Medical Injury Compensation Reform Act of 1975. Currently, MICRA caps noneconomic damages in medical malpractice cases at $250,000.

The initiative slated for the November 2014 ballot, among other things, would seek to increase that limit to $1.1 million, which going forward will be adjusted to inflation.

Yet the official summary of the initiative, written by the office of Attorney General Kamala Harris, buries the MICRA reform provision.

The first three sentences of the summary describe provisions that would require drug testing for doctors. The fourth sentence refers to a provision that would require health care practitioners to consult a state prescription drug history database before prescribing certain controlled substances. A reader would need to get all the way to the fifth and final sentence to see that the initiative increases the cap on pain and suffering damages in medical negligence lawsuits.

This bit of deceptive presentation appears to be a deliberate attempt to sneak the measure past voters. As reported in an op-ed in the Los Angeles Times, The battle between doctors and trial lawyers grows more infantile, one of the law's primary advocates described the drug testing provision as "the ultimate sweetener," admitting that when the proposal was put before focus groups, "the only thing that made them light up was drug testing of doctors."

Newman also objects to the initiative the ballot measure's potential illegality. The state constitution provides that an "initiative measure embracing more than one subject may not be submitted to the electors or have any effect."

As the state Supreme Court has explained, one of the purposes of single-subject requirement was "to minimize the risk of voter confusion and deception." The initiative certainly violates the spirit, and perhaps the letter, of this law.    

The fundamental changes contained in the initiative deserve an honest and open debate, with Californians clearly understanding what they are voting for or against. The proponents, as evidenced their packaging, appear to lack confidence that they would win such a debate on its merits. If they would invoke the initiative process, proponents should show respect, not contempt, for voters' intelligence.

ERISA Long Term Disability Claim Barred By Failure to Exhaust Administrative Remedies

DRI members Martin E. Rosen and Jenny H. Wang, partners with Barger & Wolen LLP in Los Angeles and Newport Beach, California, respectively, recently obtained a summary judgment from the U.S. District Court for the Central District of California.  The court ruled that a plaintiff seeking long-term disability (LTD) benefits under an ERISA-governed employee welfare benefit plan cannot maintain his lawsuit without first exhausting the plan’s administrative remedies and that appeals for help to the Department of Insurance do not constitute the proper exhaustion of remedies.  On that basis, the court summarily dismissed the plaintiff’s lawsuit.

Defendant United of Omaha Life Insurance Company administered plaintiff Richard Carey’s claim for LTD benefits under an ERISA plan established by his employer.  Carey claimed that he was totally disabled as defined by the plan and thus entitled to benefits.  After investigation, United denied Carey’s claim.  In its denial letter, United told Carey that he had the right to administratively appeal the claim denial, as set forth in the plan, and that he had to submit any appeal within 180 days.  The letter also informed Carey of his right to contact the Department of Insurance (DOI) about United’s handling of his claim.

 

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Cost Caps on Medical Procedures Approved

Federal officials recently approved “reference pricing,” a new cost-control mechanism that allows insurers to put a dollar limit on the amount that health plans pay for some expensive medical procedures, such as knee and hip replacements. The decision affects most employer-based plans as well as plans purchased through the Affordable Care Act’s exchanges. Plans must use a “reasonable method” to ensure “adequate access to quality providers.” 

The following illustrates how reference pricing works:

Assume that a health plan sets a hard cap of $30,000 — known as the “reference price” — on what it will pay for hospital charges associated with a knee replacement surgery. The plan offers the insured a choice of hospitals within its provider network. If the insured chooses a hospital that charges $40,000 for the knee replacement, the insured could owe $10,000 to the hospital, in addition to the insured’s usual cost-sharing for the $30,000 covered by the plan. 

The extra $10,000 is treated as an out-of-network expense and does not count toward the plan’s annual limit on out-of-pocket costs. This is important because, under the Affordable Care Act, most plans have to pick up the entire cost of care after the patient reaches the annual out-of-pocket limit (currently $6,350 for single coverage and $12,700 for a family plan). Prior to the federal officials’ ruling, it was unclear whether reference pricing violated this provision.

CalPERS, the California agency that manages health and retirement benefits for public employees, began using reference pricing in 2011 with regard to knee and hip replacements by steering patients to hospitals that were approved for quality and charged $30,000 or less. CalPERS’ health benefits director said the program has been a success and that patients are able to choose from about fifty hospitals. 

However, reference pricing may be suitable only for a specific subset of medical care: frequently-performed procedures where the prices charged vary widely but the quality of results do not. This could include MRIs and other imaging tests, cataract surgeries, and colonoscopies. 

U.S. Supreme Court Rules on Attorneys Fees in Two Patent Cases

Attorney’s fees were the subjects of two U.S. Supreme Court decisions today in high profile patent cases. In Octane Fitness v. Icon Health and Highmark v. Allcare Health, the Court decided in "exceptional cases" reasonable attorneys fees may be awarded to a prevailing party.

Interestingly, the Court leaves it to the trial court to define which cases are exceptional. This is to be done in the court's exercise of its discretion on a case-by-case basis. This is a dramatic change. The prior standard used in these types of matters required a finding of "subjective bad faith" and/or "objectively baseless" conduct. 

Those standards were very high; making the circumstances where a fee award was granted to be rare.  The policy surrounding this decision appears to deter parties who have abused the patent system for their own financial gain.

Originally posted to Barger & Wolen's Litigation Management & Attorney Fee Analysis blog.

Towers Watson risk transfer program aims to offload retiree health care risks

Last week, Towers Watson & Co. unveiled a program that would enable employers to eliminate unfunded retiree health care plan liabilities for Medicare-eligible retirees by shifting those liabilities to insurers through the purchase of group annuities.

Barger & Wolen partner Michael Newman told Business Insurance in its March 30th story about the program that retiree health care plan liabilities are a big issue for some employers.

“A lot of employers want to defuse those liabilities, but many will wait and see” for results before deciding, Mr. Newman said.

Under the program, employers would first have to adopt a defined contribution approach for health care coverage offered to Medicare-eligible retirees. Under that approach, employers agree to make a fixed contribution towards the premiums of health care plans available through Towers Watson's private exchange, with retirees picking up the difference between the credit provided by their employers and the cost of the plan they select.

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Heimeshoff highlights the importance of contractual limitation periods in ERISA plans

Since Heimeshoff, three district court cases have already held that lawsuits to recover ERISA plan benefits were barred by the plan’s contractual limitation period.

The Supreme Court’s recent decision in Heimeshoff v. Hartford Life & Accident Insurance Company held that an ERISA plan’s contractual limitation period can effectively be used to shorten a plan participant’s time to file suit following a claim denial.

The contractual limitation period at issue in Heimeshoff precluded a plan participant from bringing suit more than three years after “proof of loss” was due under the plan’s terms. ERISA, however, has been judicially construed to require that plan participants exhaust administrative remedies through an internal review and appeal process before a participant can sue to recover benefits. Notably, this means that under Heimeshoff, a contractual limitation period can begin running during the administrative review process and before the cause of action, or right to sue even accrues.

The unanimous Heimeshoff decision affirmed the 2nd Circuit’s ruling that the three-year contractual limitation period for filing suit to recover benefits under an ERISA plan is enforceable even though that limitation period begins to run before the participant’s right to sue accrues. The court concluded that “[a]bsent a controlling statute to the contrary, a participant and a plan may agree by contract to a particular limita­tions period, even one that starts to run before the cause of action accrues, as long as the period is reasonable.”

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Originally posted on InsideCounsel.

Compliance: Cigna v. Amara and how ERISA summary plan descriptions have changed

Before the Supreme Court issued its 2011 opinion in Cigna v. Amara, an ERISA plan’s summary plan description (SPD) was widely considered to be part of the plan’s governing documents. Plan terms found only in the SPD were enforceable just like the provisions of the group policy and certificate of insurance. In Admin. Comm. of Wal-Mart Stores, Inc. Assocs.’ Health and Welfare Plan v. Gamboa, the 8th Circuit ruled, “Where no other source of benefits exists, the summary plan description is the formal plan document, regardless of its label.”

That all changed, however, with the Amara decision. In that case, the Supreme Court rejected the argument that SPD terms were enforceable, holding that “the summary documents, important as they are, provide communication with beneficiaries about the plan, but . . . their statements do not themselves constitute the terms of the plan.”

The Supreme Court determined that while ERISA required an SPD, there was no statutory basis to conclude that SPD terms themselves were enforceable. The court also expressed concern that if SPD terms were enforceable, plan drafters might frustrate ERISA’s objectives by using more complex language in describing the SPD terms. The court’s opinion was also motivated by a desire to avoid the situation where the plan administrator, rather than the plan sponsor, controlled the terms of the plan.

In the aftermath of Amara, the general consensus among the lower courts has been that an SPD is still considered a plan document if the plan documents unambiguously provide that the SPD is part of the plan.

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Originally posted to InsideCounsel

Lawsuits Over Health Exchange Premium Subsidies Challenge Heart of Reform Law

Royal Oakes was quoted in a Jan. 5th, 2014, Business Insurance article, Lawsuits Over Health Exchange Premium Subsidies Challenge Heart of Reform Law, by discussing a pair of lawsuits aimed at limiting availability of premium subsidies for health care coverage purchased through certain public exchanges.

In both cases, one filed in 2011 and another in May of 2013, the plaintiffs argue that the IRS decision to include the federal exchanges in the subsidy program improperly exposes employers in states that have declined to establish their own public exchanges to penalties from which they otherwise would have been shielded.

So far, Judges in both cases have denied the government's request for summary dismissal of the suits. Legal experts have warned that a ruling against the government would hinder the government’s ability to enforce minimum coverage requirements for employers and individuals in states that refuse to establish insurance exchanges and essentially, will cut-off access to subsidized coverage for lower-income, uninsured adults in those states.

When coupled with the enormous complication caused by the cancellation of millions of insurance policies, the subsidy issue has the potential to accomplish indirectly what the law's staunchest critics have hoped to accomplish in Congress, which is a repeal,” said Royal Oakes.