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.

 

You Can Plan On The Plan: United States Supreme Court Rejects Invitation To Rewrite Plan Terms In Heimeshoff v. Hartford Life & Accident Insurance Company

On December 16, the United States Supreme Court issued its opinion in Heimeshoff v. Hartford Life & Accident Insurance Company. The unanimous decision, which was written by Justice Clarence Thomas, affirmed the Second 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 contractual limitation period at issue 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 the participant has a right to sue to recover benefits.  This means that the contractual limitation periods like the one in Heimeshoff begin running before the cause of action, or right to sue, accrues.  In other words, the contractual limitation period could theoretically bar a lawsuit even before the plan participant had the right to sue. 

Heimeshoff argued that this result conflicts with the general rule that a limitation period commences when the plaintiff has the right to sue.  The court rejected this argument, noting that in the majority of cases the plan participant still had over a year left to bring suit after the exhaustion of administrative remedies. 

Justice Thomas explained that “[i]n the ordinary course, the regulations contemplate an internal review process lasting about one year.”  “We cannot,” Justice Thomas continued, “fault a limitations provision that would leave the same amount of time in a case with an unusually long internal review process while providing for a significantly longer period in most cases.”

The court therefore 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.”  The court did recognize that “rare” cases might arise in which the internal review process precluded a plan participant from bringing suit within the contractual limitation period.  The court expressed little concern for those situations, noting that judges could use equitable doctrines, such as waiver and estoppel, to address those unusual circumstances.  As Justice Thomas explained:

“[even] in the rare cases where internal review prevents participants from bringing §502(a)(1)(B) actions within the contractual period, courts are well equipped to apply traditional doctrines that may nevertheless allow participants to proceed. If the administrator’s conduct causes a participant to miss the deadline for judicial review, waiver or estoppel may prevent the administrator from invoking the limitations provision as a defense.  To the extent the participant has diligently pursued both internal review and judicial review but was prevented from filing suit by extraordinary circumstances, equitable tolling may apply.” (internal citations omitted)

At oral argument in October, Justice Sonia Sotomayor raised the possibility that if the court ruled against Heimeshoff, the Department of Labor could potentially issue a clarifying regulation requiring a minimum period of time – one year, for example – in which the participant could bring suit following the conclusion of the administrative process. 

The decision in Heimeshoff suggests that such a regulation is unlikely, especially given the court’s belief that equitable doctrines sufficiently address the “rare” situation where little or no time exists to file suit at the end of the administrative process.

Heimeshoff is noteworthy for, among other things, the court’s recognition of “the particular importance of enforcing plan terms as written.”  The Supreme Court’s decision offers reassurance to plan administrators and claim administrators that courts will uphold the agreement of the parties unless that agreement is contrary to a controlling statute or is unreasonable. 

For further analysis of this decision, please see SCOTUS DECIDES: Three-Year Contractual Limitations Period Enforceable in ERISA LTD Plan on Barger & Wolen's Insurance Litigation & Regulatory Law blog.

Californians Will Not Allow Health Insurers to Reinstate Coverage

By Peter Felsenfeld

More than a million California residents whose health plans were cancelled under the Affordable Care Act, a.k.a. Obamacare, will not be able to keep their existing coverage, despite President Obama’s directive that insurers keep such plans available for another year. The decision about whether to implement the president’s administrative “fix” rested with Covered California, the state’s new insurance exchange. The exchange’s board announced today that it would not allow insurers to revive plans that fell short of the ACA’s coverage mandates. Instead, California’s exchange will stay the course and continue to enroll residents into Obamacare.

Covered California made the best decision for consumers by supporting the success of our new health insurance marketplace,” said Patrick Johnston, President and CEO of the California Association of Health Plans. “Today’s decision comes with a renewed effort to ease the transition process for consumers in the form of a five-step action plan focusing on extending deadlines and increasing enrollment assistance.”

The decision will undoubtedly disappoint California residents who liked their previous coverage and had hoped they could keep their nonconforming plans for another year. The announcement also drew the consternation of state Insurance Commissioner Dave Jones, who previously expressed support for President Obama’s directive.

Covered California rejected what President Obama and I asked for – that individual policyholders be allowed to keep their existing health insurance through all of 2014. Covered California’s decision denies Californians the same opportunity health insurers are giving to its small business customers who are being allowed to renew current policies throughout 2014.”

The board’s decision, however, does not come as a surprise. Allowing nonconforming policies to continue for another year poses a risk to Obamacare’s financial viability as the move could prevent young, healthy individuals from participating in the new exchanges. A risk pool disproportionately made up of previously hard-to-insure participants could cause premiums to soar. We will watch the developments and keep you informed.

Originally posted to Barger & Wolen's Employment Law Observer

Health Insurance Premium Regulation Bid Draws Criticism

Barger & Wolen partners Richard De La Mora and Richard Hopkins were both quoted in a Nov. 14, 2013, Daily Journal article, Hospital insurance premium regulations bid draws criticism, about a proposed ballot initiative intended to regulate insurance premiums and how it could actually end up leading to narrower networks and fewer choices for consumers.

The ballot initiative proposes to give California's Insurance Commissioner Dave Jones the ability to regulate health insurers' premiums by expanding Proposition 103 to include health insurers. Passed in 1988, Proposition 103 currently applies to property and casualty insurers.

Some attorneys are concerned that in an effort to create more affordable healthcare, the initiative could lead to insurers having to leave the market and hospitals having to drop out of networks.

“Hospitals are constantly pushing for higher and higher [compensation],” De La Mora said.

De La Mora told the paper he was also concerned that the proposition would lead to a complicated process for determining how to best regulate the industry.

“When Prop. 103 [went] into effect, it took years to figure out what it meant, and the result was a formula” for rate regulation, he said.

Hopkins told the paper that plans on California's health exchange, which was developed in response to the passage of the federal Affordable Care Act, indicate that insurers have developed more tightly brokered relationships between themselves and providers.

“If everyone can buy insurance regardless of preexisting conditions [which Obamacare requires], you have to find a way of managing the cost of health care being provided,” including closer payer/provider arrangements, he said.

 

Court favors plain and ordinary meaning of policy terms when insured claims policy language is ambiguous

Two of Barger & Wolen's lawyers -- Martin Rosen and Ophir Johna -- received a victory from the Ninth Circuit Court of Appeal earlier this week in Glassman v. Crown Life Ins. Co., 2013 U.S. App. LEXIS 21312 (9th Cir. 2013). 

In Glassman, the plaintiff insured sued his disability insurer, Crown Life, claiming that while Crown Life had been paying his disability claim for well over two decades, it had failed to increase his benefits each year due to a cost of living adjustment rider that he had purchased with the policy. With well over 20 years of purported policy benefit increases at issue, the amount at stake exceeded $1.5 million.

Crown Life brought a motion to dismiss the action based on both policy interpretation and statute of limitation grounds. 

Although the United States District Court for the Central District of California (Judge Steven V. Wilson) permitted the insured to conduct discovery, the court eventually granted Crown Life's motion to dismiss. 

It ruled (as Crown Life had argued) that the language of the rider served to increase a potential residual disability benefit, but did not increase the amount of total disability benefits payable in any month. The insured appealed the district court's ruling. 

On appeal, the Ninth Circuit sided with Crown Life and affirmed the district court's ruling, finding that "The language of the Rider unambiguously applies only to partial or 'residual' disability benefits, rather than total disability benefits." Id. at *1-2.

The opinion, while unpublished, is a reminder to insureds and their lawyers that simply contending that policy language is ambiguous does not make it so, and that courts will construe policy language in its plain and ordinary meaning.

To listen to the Ninth Circuit arguments, click here.

SCOTUS Unlikely to Reject Three-Year Limit for Filing Lawsuit in ERISA Disability Claim

The transcript from this morning’s oral argument at the United States Supreme Court reflects that a majority of justices seem poised to uphold an ERISA plan provision imposing a three-year limit for claimants to file their lawsuits following the original submission of proof of loss. 

Several justices expressed skepticism over the need to intervene in this particular case, where the plaintiff/petitioner had approximately one year following the final denial of her claim within which to sue. Moreover, at least one justice noted that the federal government would be empowered to issue a clarifying regulation only if the Court ruled against the plaintiff and upheld the three-year limit.

In Heimeshoff v. Hartford Life & Accident Ins. Co., et al., the District Court of Connecticut had dismissed Julie Heimeshoff’s case, deeming it time-barred given the plan’s contractual limitation requiring legal action to be commenced within three years “after the time written proof of loss is required to be furnished.” The Second Circuit Court of Appeals affirmed. For a more in-depth analysis of the District Court’s and Second Circuit’s rulings, see our prior blog entry, Accrual of Statute of Limitations for ERISA Disability Claim to be heard by SCOTUS.

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Accrual of Statute of Limitations for ERISA Disability Claim to be heard by SCOTUS

On October 15, 2013, the United States Supreme Court will conduct oral argument in Heimeshoff v. Hartford Life & Accident Ins. Co., et al., addressing the accrual of the statute of limitations for judicial review of an adverse benefit determination under an employee benefit plan governed by the Employee Retirement Income Security Act (“ERISA”).

As discussed below, the District Court of Connecticut granted defendants’ motion to dismiss, holding that plaintiff’s lawsuit was time-barred given the plan’s contractual limitation requiring legal action to be commenced within three years “after the time written proof of loss is required to be furnished.” The Second Circuit Court of Appeals affirmed in an unpublished per curiam opinion. In granting the petition for review, the Supreme Court limited the scope of its inquiry to a single question, rejecting consideration of two others that had been posed.

This blog entry will therefore “tee up” Tuesday’s oral argument before the Supreme Court, summarizing the underlying District Court and Second Circuit decisions and clarifying what are – and what are not – the core issues to be resolved.

 

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