What is Good for the Goose
is Good for the Gander:
ERISA, Federal Employee Health Benefits
Act and Medicare Claims Denial and Appeals
Procedures and Remedies

A CHALLENGE TO THE FEDERAL GOVERNMENT

It is noble to do good.
But it is nobler to teach others to do good…
And it is also a lot less trouble.
--Mark Twain

The Clinton Administration and many in Congress have argued vigorously that much greater "consumer protections" are necessary for health plan participants. Specifically, they contend that more extensive procedures for reviewing benefit claims denials and much greater liability for health plans and/or employer plan sponsors are needed to afford further consumer protection guarantees. A variety of proposals such as the "Patients' Bill of Rights Act," H.R. 3605/S. 1890, and the "Patient Access to Responsible Care Act," H.R. 1415/S. 644, have been warmly embraced as embodying the changes needed to "take health care decisions out of the hands of accountants and to put them back in the hands of doctors."

Curiously, many of our nation's leaders would not extend the same provisions of these bills to workers and their families and retirees who are covered by the very health plans for which the federal government itself is the plan sponsor - the approximately 10 million Americans covered under the Federal Employees Health Benefits Program (FEHBP). And while Congress recently somewhat strengthened the consumer protections available to some Medicare beneficiaries, none of the additional measures that would be imposed on private sector health plans under the proposed consumer protection legislation would be extended to the 37 million elderly or disabled Americans who rely on Medicare for their health care coverage.

The Clinton Administration and its Congressional allies have trained their sights on the rules set forth in the Employee Retirement Income Security Act of 1974 (ERISA) that governs private employer-sponsored health plans. They contend that ERISA'sconsumer protections are insufficient; and that either ERISA, itself, needs to be changed, or that sponsors of ERISA plans and health insurance carriers should be subjected to a patchwork quilt of state law causes of actions.

The Association of Private Pension and Welfare (APPWP-The Benefits Association) represents employers and service provider organizations that either directly sponsor or administer health and retirement plans that cover more than 100 million Americans who are protected by ERISA's strong foundation. APPWP's members collectively spend billions of dollars each year on health coverage, and we have blazed the trail for higher quality health services for our employees, retirees and family members. It is a trail that the federal government is only now belatedly following as it has come to realize - if not quite publicly acknowledge - that effectively managing health care and adopting successful private sector purchasing strategies both saves money and improves quality.

What this APPWP report clearly demonstrates, is that ERISA's claims review procedures and available remedies are, in all relevant aspects, equal or superior to procedures and remedies available to the nearly 50 million Americans served by Medicare and the FEHBP.

APPWP engaged the expertise of noted Washington, D.C. employee benefits attorney, William G. Schiffbauer to examine and compare ERISA, Medicare and the FEHBA. What Mr. Schiffbauer has reported with precision and clarity is that the much-maligned ERISA is, indeed, far superior to either Medicare or FEHBP with respect to the plan participant protections it affords. In terms of the timeliness within which a disputed claims denial must be reviewed, the clarity, fairness and administrability, (from a plan participant's perspective) of the appeals process, the opportunity to have a full and timely judicial review of a claim denial decision, the remedies available to a participant who prevails in a judicial determination awarding benefits, and in terms of the fiduciary responsibility of the plan administrator with ultimate claim decision-making authority - in all of these matters ERISA provides consumer protections that are equal or superior to those afforded under Medicare and FEHBP.

Those who advocate changing ERISA may claim that the federal programs themselves will undergo revisions pursuant to President Clinton's recent directive to all relevant federal agencies to determine how they should implement the terms of the "bill of rights" drafted by the President's Advisory Commission on Consumer Protection and Quality in the Health Care Industry. The comparison is not accurate.

APPWP applauded President Clinton for directing federal agencies to report back to him how they would each implement the consumer bill of rights in the health plans under their jurisdiction. However, even assuming full implementation of the President's directive by federal agencies, the federal programs will not be held to the same standards as ERISA provides now - let alone the standards private plans would be required to meet under proposed legislation endorsed by the Clinton Administration.

First, the scope of the bill of rights drafted by the President's Commission, which the federal agencies are directed to implement, is not nearly as comprehensive as the legislative "bill of rights" pending in Congress which the Administration has endorsed. Second, President Clinton and Congressional supporters are vigorously pushing for the enactment of "bill of rights" legislation, before Congress has even considered the adequacy of the federal agencies' efforts to comply with the more modest recommendations of the President's Commission. Third, it is highly likely - indeed, virtually certain - that each of the federal agencies will choose to implement the President's directive in a manner that affords them the greatest flexibility, while, again, the federal legislation under consideration would subject all private health plans - and only private plans - to strict and rigid practices. (In fact, public sector health plans are not even subject to the most specific provision in the President's directive - the assignment to the Department of Labor to draft a new rule for private sector plans regarding the time frame for reviewing claims denials for both routine and "urgent" claims.) Meanwhile, administrative appeals backlogs under Medicare for physician claims routinely take nearly two years to resolve.

APPWP is not advocating the application of more substantial appeals processes or remedies to federal health plans such as Medicare and FEHBP. Admittedly, the federal government - with its authority to impose taxes, or print more money - is in a better position than the private sector to absorb the costs and administrative burdens of stricter appeals processes and remedies. Rather, the main point of our study is that neither public nor private health plan sponsors should face the prospect of unreasonable restrictions on their ability to manage health care costs or to act as innovative and prudent health care purchasers. What APPWP does believe, is that the federal government is long overdue in joining the ranks of private employer-sponsors of health plans who are dramatically and fundamentally reshaping the health care marketplace by acting as prudent and demanding purchasers of health care services. As the federal government now begins to follow the lead set in the private sector, it will find that the best consumer protections and quality health care services do not result from heavy-handed regulatory practices. Rather, it comes from negotiations with willing health plan partners who are committed to service excellence, and who are rewarded for delivering high quality health coverage to the people for whom America's employers sponsor health plan - workers, retirees and their families.

James A. Klein
President
Association of Private Pension and
Welfare Plans ("APPWP-The Benefits
Association")

June 1998

WHAT IS GOOD FOR THE GOOSE IS GOOD FOR THE GANDER:
ERISA, the Federal Employees Health Benefits Act and Medicare
Claims Denial And Appeals Procedures And Remedies

I. INTRODUCTION

Current public policy debate about the adequacy of the process of appealing benefit claims denials has focused exclusively on private, employer-sponsored health plan arrangements. However, aspects of this debate have ignored the striking similarity of appeals procedures and remedies in the law governing private plans and in federally-sponsored health plan arrangements such as Medicare, and the Federal Employees Health Benefit Act ("FEHBA") which provides health benefits to Members of Congress, their staff, the President and other executive branch federal employees. Approximately 124 million Americans are covered by private, employer-sponsored health plans. Between 32 and 48 million of those 124 million employer-covered individuals are enrolled in self-insured plan arrangements, and the remaining 76 to 92 million are enrolled in fully-insured plans. Both self-insured and fully-insured employer sponsored plans are regulated by the Employee Retirement Income Security Act ("ERISA")1. Medicare covers some 37 million aged and disabled Americans. The FEHBA covers approximately 10 million Americans.

The Clinton Administration has raised the inference that individuals covered under Medicare and FEHBA are better off than individuals in ERISA regulated health plans2. However, contrary to that view, this analysis concludes that: (1) like ERISA, both Medicare and FEHBA preempt State law remedies and limit recovery with respect to "benefits due"; (2) ERISA plan participants and beneficiaries have easier access to judicial review; (3) the internal appeals process in ERISA plans is more direct, less cumbersome, and less bureaucratic than FEHBA and Medicare; (4) ERISA specifically permits recovery of attorneys fees and costs, whereas FEHBA and Medicare do not; and (5) ERISA holds plan "fiduciaries" to a strict standard of liability for any breach of duty that equivalent responsible parties wholly escape under FEHBA and Medicare. This paper discusses these findings below, comparing the claims appeal process as well as the availability and scope of judicial review, and available remedies for each of these programs, highlighting important similarities and contrasting the differences.

II. APPEALS PROCESS

The appeals process for a health benefit claim denial is superior for a plan participant under ERISA than under Medicare and FEHBA.

A. Medicare Appeals Process

Like all private health plan arrangements, Medicare excludes from coverage under Parts A (hospital services) and B (physician services) all items and services not reasonable and necessary for the diagnosis or treatment of illness or injury3. In interpreting this provision, Medicare regulations also prohibit payment of benefits for any experimental, investigational, or unproven treatment or diagnostic method not yet generally accepted in the medical profession4. The exclusive remedy for actions "relating to" the denial of Medicare benefits is the administrative appeals process5. Beneficiaries have a statutory right to a hearing and, under certain circumstances, judicial review of any final decision when Medicare benefits are denied6.

1. Part A Administrative Appeals

An "initial" benefits denial decision regarding Part A hospital services may be appealed to the Health Care Financing Administration ("HCFA"). The appeal must be in writing and filed within sixty days after the receipt of the "initial" decision7. A beneficiary may, within sixty days, request a de novo hearing before an administrative law judge ("ALJ") if the amount in controversy is $100 or more8. The average waiting time for an ALJ to resolve a Part A claims dispute is over 300 days9. A person may request review of an ALJ's determination by the U.S. Department of Health and Human Services ("HHS") Departmental Appeals Board. The administrative hearing and HHS Departmental Appeals Board review can be bypassed, permitting an individual to appeal directly to court. However, this expedited appeal is possible only where: (1) HCFA has made a reconsideration determination; or (2) an ALJ has made a hearing decision; or (3) an HHS Departmental Appeal Board review is requested but no final decision issued; and (4) no material facts are disputed; and (5) the benefit denial was made pursuant to a statutory provision or regulation which the individual requesting review alleges is unconstitutional, or that is invalid10. Appeals of HCFA determinations involving National Coverage Decisions ("NCD's") (i.e. decisions granting, limiting, or excluding coverage of specific services that are binding on all Medicare carriers, intermediaries, and HMO's) cannot be reviewed by an ALJ11. Furthermore, a court may only review NCD's with respect to whether the record is complete or lacks adequate information to support the decision12.

2. Part B Administrative Appeals

A beneficiary dissatisfied with an "initial" benefits denial decision for physician or other Part B benefits may request review by the Medicare carrier. The request must be in writing and filed within six months of the date of the "initial" determination13. If the amount in controversy is $100 or more, a beneficiary may also request a hearing before a hearing officer appointed by the carrier within six months14. Regulations specify the rules for conducting a "carrier" hearing, including the requirement that any evidence may be received, and presentation of oral argument and other written statements allowed upon request15. If the beneficiary who requested the hearing is dissatisfied with the review, an oral hearing before a different hearing officer may be requested. Any "initial" determination or hearing decision may be reopened within 12 months16. If the benefit is $500 or more, the beneficiary may request a de novo hearing before an ALJ17. However, the average waiting time for an ALJ to resolve a Part B claims dispute is 664 days18. A beneficiary may request further review of an ALJ decision before the Departmental Appeals Board19. An expedited appeals process for court review is provided for constitutional issues under the same conditions as described under Part A appeals20. As under Part A, appeals of HCFA determinations involving NCD's cannot be reviewed by an ALJ, and a court is limited in its review21.

3. Medicare HMO Administrative Appeals

An "HMO" benefits denial decision regarding basic Part A or Part B services (but not optional supplemental benefits such as prescription drug benefits) may be appealed to the HMO22. The appeal must be in writing and filed within sixty days after the receipt of the decision23. An appeal (or "reconsideration") may be expedited upon oral or written request when the HMO decides that a beneficiary's life, health or ability to regain maximum function is in serious jeopardy24. Reconsideration determinations are automatically made to HCFA and the Center for Health Dispute Resolution ("CHDR") within sixty days from the date of receiving the appeal request.25 CHDR is an independent reviewer under contract with the Medicare program (and private plans) that bases its review on National Coverage Decisions and the record submitted to the HMO. A beneficiary may, within sixty days, request a de novo hearing before an administrative law judge ("ALJ") if the amount in controversy is $100 or more26. A person may request review of an ALJ's determination by the Departmental Appeals Board27.

B. FEHBA Appeals Process

Under the Federal Employee Health Benefit Plan Act ("FEHBA"), each health benefits carrier is authorized to make decisions with respect to "medical necessity" and to resolve claims. An individual must request a "reconsideration" of a denied claim within six months of the date of denial28. A carrier has 30-days after receiving a request for reconsideration to either: (1) affirm the denial; (2) pay the bill; or (3) request additional information for purposes of reconsidering the claim (in such case a decision must be made within 30-days after receipt of the information). 29If a carrier affirms the denial or fails to respond, an individual may request that the Office of Personnel Management ("OPM") review the claim30. Because OPM functions as the "plan sponsor" equivalent to ERISA regulated plans, this "independent" review is really a final appeal to the "employer".

A request for review by OPM must be made: (1) within 90 days after the carrier's decision; or (2) within 120 days after the request to the carrier, in the case where a carrier fails to respond; or (3) within 120 days after a carrier requests additional information31. Upon review of a claim that has been denied by a carrier, OPM may: (1) request additional information; (2) obtain an advisory opinion from an independent physician; or (3) make a decision based solely on the information provided by the individual32. The OPM must provide written notice of its decision within 90 days after receipt of the request for review33. Finally, OPM can, on its own motion, reopen its review if new evidence becomes available34.

C. Private Plan Appeals Process

Private plans are required to establish procedures for review of claims denials35. Compared to FEHBA and Medicare, the process for private, employer-sponsored health plan arrangements of appealing a claim that is denied on the basis of "medical necessity", for example, is much simpler and more accommodating of the desire of plan participants to have a clear, administratively understandable, prompt, and fair process for reconsideration of claims denials compared to FEHBA or Medicare. Every employee benefit plan that is subject to ERISA (both insured and self-insured) must establish and maintain a procedure for a claimant that provides a "reasonable opportunity" to appeal benefit denials to either: (1) an appropriate named fiduciary (such as the plan administrator); or (2) a person designated by the fiduciary (such as an insurance company or other person identified in the plan to review and make decisions on claim denials36). Review of the claim must meet a "full and fair" standard, which includes an appeals period, identical to Medicare, of sixty days after receipt by the claimant of the written notice of the benefit denial. 37Decisions on appeals generally must be made not later than sixty days after the plan's receipt of a request for review38. In addition, under ERISA's flexible "full and fair" review requirement, many employer-sponsored plans voluntarily contract with an external dispute resolution entity to resolve issues relating to experimental and investigational coverage controversies.

Unlike FEHBA and Medicare, where such participant protection is absent, ERISA imposes separate statutory obligations and liabilities on "fiduciaries" who must be either explicitly designated as such in the plan document, or be identified by the employer-sponsor, or who may acquire this status by their relation to the plan (i.e. employer39). ERISA fiduciaries exercise "discretionary" authority or control over management of the plan40. The discharge of the fiduciary's duties are held to a high standard, acting "solely in the interest" of the participants and beneficiaries, and using care, skill, prudence, and diligence in the execution of this duty41. An ERISA fiduciary who breaches any of the duties and responsibilities is personally liable to make good on plan losses resulting from a breach42. This added protection is important with respect to claims administration, obligating fiduciaries to pay valid claims, and to even disclose HMO financial relationships43, representing a significantly higher standard than most non-employer sponsored, commercial insurer-insured health plan relationships. This protection under ERISA certainly represents a much higher level of accountability to private plan participants than is accorded to either FEHBA or Medicare participants, where there is no one individual within the multilayered, bureaucratic, and cumbersome claims review process who is personally liable to participants.

III. JUDICIAL REVIEW

The opportunity for judicial review of a health benefit claim denial is superior under ERISA, than under Medicare and FEHBA.

A. Judicial Review of Medicare Benefit Claims

Judicial review of Medicare benefit denials are allowed only after the Secretary of Health and Human Services renders a "final decision" on the claim. Furthermore, final decisions involving both Part A and Part B can be reviewed in federal court only if the amount in controversy is $1000 or more44. In addition, the Act applies strict limitations with respect to recourse to the federal courts, specifying that the findings and decisions of the Secretary are binding and shall not be reviewed by any person, tribunal, or government agency; and provided further that no action against the United States, the Secretary, or any officer or employee may be brought to recover on "any claim arising under" the Act.45

The U.S. Supreme Court has provided a great deal of protection to the "finality" of the Federal government's decisions on benefit claims by ruling that the phrase "arising under" the Act is to be broadly construed46. Thus, claims arising under other laws and regulations --especially State laws--may be preempted if they are "inextricably intertwined" with a benefits determination under the Medicare47. The Supreme Court has also made distinctions in the scope of judicial review based upon two types of administrative decisions: (1) eligibility determinations (that decide whether a beneficiary is 65 or older, or is disabled); and (2) amount determinations (that decide the amount of the Medicare payment to be made on a particular claim). Although a Medicare beneficiary may seek judicial review of a decision that he or she is not eligible for benefits, unlike ERISA plan participants, a Medicare beneficiary cannot go to court to challenge the amount of a Medicare payment made on a claim48.

B. Judicial Review of FEHBA Benefit Claims

In the FEHBA system, an individual must exhaust both the carrier and OPM review processes before seeking judicial review of a denied claim49. An individual re-questing judicial review may challenge only a "final action" by OPM regarding denial of the health benefit claim50. An action for judicial review must be brought in federal court against OPM, and not against the carrier (or any of a carrier's subcontractors)51. The regulations limit the time within which any action may be brought against OPM to three years after the care or service was provided52. The court's review of the OPM decision is limited to the record that was before OPM when the final decision was made, and as is the case with ERISA, the remedy is limited to the amount of benefits in dispute53.

C. Judicial Review of Private Plan Benefit Claims

Judicial review of claims denials in private, employer-sponsored health plan arrangements are less restricted than under the FEHBA or Medicare program. By contrast to Medicare and FEHBA, participants and beneficiaries in private, employer-sponsored health plan arrangements may immediately bring a civil action to recover benefits due, enforce rights or clarify rights to future benefits, or enjoin acts or practices that violate the terms of the plan, or to obtain other equitable relief to redress violations or enforce provisions54. Because ERISA requires that the claimant be provided a "full and fair" review by the plan, the general rule requires exhaustion of the administrative remedies afforded under the plan55. Although an exhaustion requirement is not explicitly set forth in ERISA, the requirement is designed to prevent "premature judicial intervention"; in addition, exhaustion assures courts that a claim has been fully considered by the plan56. However, when compared to FEHBA and Medicare, requirements under ERISA are far more accommodating to special circumstances that may serve a participant's interests. For example, exceptions to exhaustion of administrative remedies, have developed where: (1) the claimant lacks meaningful access to the review procedures; or (2) exhaustion of the plan's administrative appeals process is futile; or (3) there is danger of irreparable harm57.

IV. AVAILABLE REMEDIES

The opportunity to recover monetary remedies is more limited under Medicare and FEHBA, than it is under ERISA.

A. Remedies Under Medicare

Congress expressly intended the remedies provided by Medicare's review procedures to be exclusive and limited58. The exclusive nature of these remedies is reflected in the statutory structure of the Social Security Act which does not authorize award of attorney's fees. The Act provides that the determination of the amount of benefits under Part A or Part B, and any other determination with respect to a claim for benefits shall be made by the Secretary in accord with regulations59.

A recent court of appeals decision has been touted by some as evidence that other State law remedies are available to Medicare beneficiaries. However, as the discussion below explains, this decision by a single circuit court is limited, and specifically notes that Medicare's exclusive remedies were not at issue because the plaintiffs were not seeking a recovery of benefits. Moreover, the scope of the ruling only applies to those participants who are enrolled in a private health plan option under the Medicare risk contract program; and it provides no additional relief to the vast majority of beneficiaries who are enrolled in the traditional Medicare fee-for-service program.

In Ardary v. Aetna Health Plans of California the scope of federal preemption of Medicare's "arising under" clause, as affecting the application of State law remedies to private Medicare HMO's, was examined by the Ninth Circuit Court of Appeals60. The court's analysis is much in the same manner as the scope of ERISA's "relates to" preemption clause has been reviewed. The principal issue in the Ninth Circuit case was whether the Medicare Act's exclusive administrative review of all claims "arising under" the Act precluded heirs of a deceased Medicare beneficiary from bringing State law claims for wrongful death against a private Medicare HMO.

As discussed below, the court did not preempt State claims, however, only because the court concluded that the claims did not "arise under" the Medicare Act. In doing so, the Ninth Circuit reversed a district court decision that Medicare provided the exclusive remedy for the plaintiffs because the Ninth Circuit reasoned that the State law claims are not 'inextricably intertwined' with the denial of benefits. The appeals court concluded that the wrongful death complaint is not 'inextricably intertwined' because the Ardarys are not seeking to recover benefits61. Distinguishing a prior ruling by another circuit, the Ninth Circuit stated that the claims did not arise under the Medicare Act, and applied a "strong presumption" that Congress does not intend to preempt state law causes of action with a federal statute62. The court found nothing in the legislative history to suggest that the Medicare Act was designed to abolish all state remedies which might exist against a private Medicare provider pursuant to a contract with HCFA, except to forclose review only of 'amount determinations'63.

The Clinton Administration has argued that this opinion of one circuit, nonetheless, stands for a national proposition affording State law remedies for denials of Medicare benefits. However, because this is only one circuit's view, it cannot be said that a national policy exists in following this opinion for several reasons. First, the plaintiffs in this case did not seek the recovery of Medicare benefits, but rather, sought compensatory and punitive damages based upon State law theories of negligence and misrepresentation. In direct contrast to the Administration's assertion that beneficiaries are now afforded State law remedies for benefit denials, the Ardary court ruled as it did specifically because the plaintiffs were not seeking to recover benefits. Second, the case concerned a Medicare risk contractor and not Medicare fee-for-service. About 13 percent of Medicare beneficiaries are enrolled in private health plans under Medicare and the remaining 87-percent (some 32 million beneficiaries) are not affected by this ruling, even were it nationally applicable, because as the court noted, its decision involved the application of State remedies to a private Medicare provider64. Finally, as noted earlier, eleven other U.S. Circuit Courts of Appeals have not adopted this interpretation and therefore it cannot be argued as a universally applicable ruling.

B. Remedies Under the FEHBA

Importantly, the FEHBA's authorizing statute includes a sweeping preemption provision which does not allow State law remedies nor even authorize award of attorney's fees65. The law provides that any contractual terms and conditions or provisions which "relate to" the nature or extent of coverage or benefits (including payments) shall supercede and preempt any State or local law, or regulation, which "relates to" health insurance or plans, to the extent inconsistent with the contract provisions66. This provision has been read by the majority of courts as preempting all State law claims and even precluding an award of attorneys fees. The Fifth Circuit Court of Appeals has outlined the majority view on this matter67. In holding that certain State law claims based in tort were preempted, the Fifth Circuit stated that preemption is a matter of intent, and that, with respect to FEHBA, "Congress expressed itself with unusual clarity... to ensure nationwide uniformity of the administration of benefits"68. The court further noted that tort claims arising out of the manner in which a benefit claim is handled are not separable from the terms of the contract that governs the benefit69. Like ERISA cases, the court noted that State law claims "relate to" the plan as long as they are connected with or refer to the plan and therefore are preempted70.

C. Remedies Under ERISA

Similar to the FEHBA and the Medicare Act, State law claims are federally preempted by ERISA where such claims "relate to" an employee benefit plan. The broad reach of preemption, however, has narrowed considerably with respect to private health plan arrangements since the 1995 U.S. Supreme Court decision in New York State Conference of Blue Cross Blue Shield Plans v. Travelers71. In that case, the court established a new standard of preemption analysis, looking at State law claims in light of the "purposes and objectives" of ERISA (i.e. uniformity of plan administration and benefit structure). In abandoning the previous "textual" analysis, the court has established a less literal application of ERISA preemption72. The effect of this new approach to preemption analysis has resulted in numerous cases being considered for review under State law based on claims for medical negligence, for example73. Thus, ERISA is not a barrier to protecting employees of employer-sponsored health plans in instances where a plan's medical service provider is found to be directly or vicariously liable for medical malpractice.

Remedies are also available with respect to breach of fiduciary duties. In reviewing a benefits denial claim, courts are mindful of the trust law basis of ERISA and, where the plan reserves discretionary authority to the plan administrator, the court must apply an "abuse of discretion" standard (i.e. was the determination arbitrary and capricious)74. However, if discretion is not reserved to the plan administrator, the court must apply a de novo standard in reviewing the plan's benefit denial determination75. Under a de novo review, a court may proceed as if the review is an original action rather than having to review a fiduciary's decision. Under a de novo review, a court may proceed as if the review is an original action rather than a review of the fiduciary's decision, affording a claimant the opportunity to have the court interpret the plan's language, and in some cases, receive new evidence. Accordingly, the plan language must be closely examined to determine whether the plan administrator reserves discretionary authority in benefit claims administration. Also, as noted earlier, ERISA fiduciaries who are found to have violated their duties of acting solely in the interest of plan participants and beneficiaries are subject to direct liability; or removal; or courts may award equitable relief and civil penalties for breach of fiduciary duties76.

Finally of note, although extracontractual damages are generally not recoverable under ERISA, a court may exercise its discretion and award "reasonable" attorney's fees and costs to either party77. Such an award is comparable to damages for "bad faith". This is because the general rule has been established by the majority of courts that, in order for a prevailing plaintiff to be awarded attorney's fees and costs, five factors must be considered: (1) the degree of the offending parties' culpability or bad faith; (2) the degree of the ability of the offending party to satisfy personally an award of attorney's fees; (3) whether or not an award of attorney's fees against the opposing parties would deter other persons acting under similar circumstances; (4) the amount of the benefit as a whole; and (5) the relative merits of the parties' positions78. Awards to a prevailing health plan or employer defendant are rare, and usually involve plaintiff "bad faith" or a frivolous sui79t. Neither FEHBA or Medicare provide for this "bad faith" award.

V. CONCLUDING OBSERVATIONS

The consumer protections afforded under ERISA are equal or superior to those provided under Medicare and FEHBA. Interesting parallels exist between the Medicare Act, FEHBA and ERISA: all three statutes generally preempt State substantive law and remedies, and allow as relief only the "benefits due" under the Medicare Act, FEHBA, or the private, employer-sponsored health plan arrangement. ERISA, however, affords a claimant speedier access to judicial review after exhausting internal plan procedures that must be completed within 120 days (unless certain exceptions apply). ERISA also permits claimants to seek injunctive relief as well. By contrast, both FEHBA and Medicare require that an individual have run the entire gauntlet of administrative appeals: first, to the agency, or the carrier, or the organization (in the case of an HMO); next, in the case of Medicare, to the administrative law judge; then, to the Departmental Appeals Board or OPM; and only after a "final decision" by the Secretary, or OPM, is there a limited judicial review available. FEHBA's preemption clause, enacted two years after ERISA's enactment, is strikingly similar in language and effect, and is based upon the public policy goal of ensuring that all federal employees have equal rights and to avert the application of 50 different State laws.

Unlike FEHBA and Medicare, ERISA permits "extracontractual" damages in the form of attorneys fees and costs, depending upon the bad faith actions of either party to an action. Finally, it is important to note that personal liability is imposed on ERISA fiduciaries which offers important protection for claimants. Neither the Secretary of HHS, nor the Administrator of OPM are held to such standards. Accordingly, the Clinton Administration and the Congress should not even contemplate changes to the rules governing private health plans, while the protections accorded to federal employees under FEHBA, and to aged and disabled Americans under Medicare, are not as strong as the consumer protections already provided under ERISA.

 

ENDNOTES

  1. Fully-insured employer-sponsored plans are regulated by applicable State law for purposes of insurance standards, licensing, solvency, and specific benefits to be provided. ERISA sets forth the grievance and appeals procedures applicable to both self-insured and fully-insured employer-sponsored plans.
  2. SeeSee Testimony of Olena Berg, Assistant Secretary of Labor, Pension and Welfare Benefits Administration. Before the Committee on Appropriations, Subcommittee on Labor, Health and Human Services & Education, U.S. Senate (May 14, 1998).
  3. See Social Security Act § 1862 (a) (1) (A); see also 42 C.F.R. § 411.15 (k).
  4. See 42 C.F.R. § 411.15 (o); see also Medicare Part B Carrier's Manual, Coverage Issues Appendix; and Goodman v. Sullivan 891 F.2d 449 (2nd Cir. 1989) (Medicare's payment denial is not the practice of medicine).
  5. See Social Security Act § § 205 (h), and 1872.
  6. See Social Security Act § 1869.
  7. See 42 C.F.R. § 405.711 (1997).
  8. See 42 C.F.R. § 405.720 (1997).
  9. See Testimony of Michael M. Hash, Deputy Administrator, Health Care Financing Administration. Before the Committee on Ways and Means, U.S. House of Representatives (April 23, 1998).
  10. See 42 C.F.R. § 405.718 (1997).
  11. See 42 C.F.R. § 405.732 (b) (1997).
  12. . See 42 C.F.R. § 405.732 (c) (1997).
  13. See 42 C.F.R. § 405.807 (c) (1997); see also 42 C.F.R. § 405.821 (1997).
  14. See 42 C.F.R. § 405.815 (1997).
  15. See 42 C.F..R. 405.830 (1997).
  16. See 42 C.F.R. 405.842 (1997).
  17. See Social Security Act §1869. See also 42 C.F.R. §405.801 (a) (1997).
  18. See Testimony of Michael M. Hash, Deputy Administrator, Health Care Financing Administration. Before the Committee on Ways and Means, U.S. House of Representatives (April 23, 1998).
  19. See 42 C.F.R. § 405.801 (a) (1997).
  20. See 42 C.F.R. § 405.853 (1997).
  21. . See 42 C.F.R. § 405.860 (1997).
  22. See 42 C.F.R. § 417.604 (1997).
  23. See 42 C.F.R. § 417.616 (b) (1997).
  24. See 42 C.F.R. § 417.617 (1997).
  25. See 42 C.F.R. § 417.620 (1997).
  26. See 42 C.F.R. § § 417.630, and 417.632 (1997).
  27. See 42 C.F.R. § 417.634 (1997).
  28. See 5 C.F.R. § 890.105 (b) (1998).
  29. See 5 C.F.R. § 890.105 (b) (2) (1998).
  30. See 5 C.F.R. § § 890.105 (a) (1) and (3) (1998).
  31. See 5 C.F.R. § 890.105 (e) (1) (1998).
  32. See 5 C.F.R. § 890.105 (e) (2) (1998).
  33. See 5 C.F.R. § 890.105 (e) (4) (1998).
  34. See 5 C.F.R. § 890.105 (e) (5) (1998).
  35. See ERISA § 503. See also 29 C.F.R. § 2560. 503-1 (a) (1997).
  36. See 29 C.F.R. § 2560. 503-1 (g) (1) (1997).
  37. See 29 C.F.R. § 2560.503-1 (g) (3) (1997).
  38. See 29 C.F.R. § 2560. 503-1 (h) (1) (1997) .
  39. See ERISA § 402 (a) (2).
  40. See ERISA § 3(21).
  41. See ERISA § 404 (a) (1).
  42. See ERISA § 405.
  43. See Shea v. Esensten, 107 F.3d. 625 (8th Cir. 1997), cert. denied, 118 S. Ct. 297 (1997).
  44. See Social Security Act §§ 205 (g), and 1869 (b). See also 42 C.F.R. § 405.730, 405.857 (1997).
  45. See Social Security Act §§ 205 (h), and 1872.
  46. See Heckler v. Ringer, 466 U.S. 602 (1984).
  47. Id. at 622-24.
  48. See United States v. Erika, 456 U.S. 201 (1982); see also Bowen v. Michigan Academy of Family Physicians, 476 U.S. 667 (1986).
  49. See 5 C.F.R. § 890.105 (a) (1) (1998).
  50. See 5 C.F.R. § 890.107 (c) (1998).
  51. See 5 C.F.R. § 890.107 (c) (1998). See also Sarkis v. Heimburger, 933 F. Supp. 828 (E.D. Mo. 1996) (federal question jurisdiction relating to administration and payment of benefits).
  52. See 5 C.F.R. § 890.107 (d) (1998).
  53. See 5 C.F.R. § § 890.107 (c) and (d) (1998).
  54. See ERISA § 502 (a) (1) and (3).
  55. See ERISA § 503 (2).
  56. See Powell v. AT&T Communications, Inc., 938 F.2d 823, at 826 (7th Cir. 1991).
  57. See Smith v. Blue Cross & Blue Shield United of Wisconsin, 959 F.2d 655, at 658 (7th Cir. 1992); see also Henderson v. Bodine Aluminum, Inc., 70 F.3d 958 (8th Cir. 1995).
  58. See Sen. Rpt. No. 404, 89th Cong., 1st Sess., reprinted in 1965 U.S. Code Cong. & Admin. News 143 at 1995.
  59. See Social Security Act § 1869 (a).
  60. See Ardary v. Aetna Health Plans of California, Inc., 98 F.3d 496 (9th Cir. 1996), cert. denied, 117 S. Ct. 2408 (1997).
  61. Id. at 500.
  62. Id at 501; See also Bodimetric Health Services v. Aetna Life & Cas. Co., 903 F.2d 480 (7th Cir. 1990).
  63. See Ardary at 501.
  64. See Id.
  65. See 5 U.S.C. § 8902 (m).
  66. See 5 U.S.C. § 8902 (m) (1).
  67. See Burkey v. Government Employees Hospital Association, 983 F.2d 656 (5th Cir. 1993). See also Myers v. United States, 767 F.2d 1072 (4th Cir. 1985); Med Centers Health Care v. Ochs, 26 F.3d 865 (8th Cir. 1994); Hayes v. Prudential Ins. Co. of Amer., 819 F.2d 921 (9th Cir. 1987); Tackitt v. Prudential Ins. Co. Amer., 758 F.2d 1572 (11th Cir. 1985).
  68. See Id. at 658, 660.
  69. See Id.
  70. See Id.
  71. 115 S.Ct. 1671 (1995).
  72. See also California Division of Labor Standards Enforcement v. Dillingham Construction, Inc.,136 L.Ed 2d 791, 117 S. Ct. _____ (1997); and DeBuono v. NYSA-ILA Medical and Clinical Services Fund,138 L.Ed.2d 21, 117 S. Ct. ____ (1997).
  73. See Dukes v. U.S. Health Care, 57 F.3d 350 (3rd Cir. 1995); Pacificare of Oklahoma, Inc. v. Burrage, 59 F.3d 151 (10th Cir. 1995); Rice v. Panchal, 65 F.3d 637 (7th Cir. 1995).
  74. See Williamson v. UNUM Life Insurance Company of America, 943 F. Supp. 1226 (C.D. Cal. 1996).
  75. See Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101 (1989).
  76. See ERISA §§ 502 (g) and (l). See also Howe v. Varity Corp., 116 S. Ct. 1065 (1996); and Mertens v. Hewitt Associates, 113 S. Ct. 2063 (1993).
  77. See ERISA § 502 (g) (1).
  78. See Bittner v. Sadoff & Rudoy Industries, 728 F.2d 820 (7th Cir. 1984).
  79. See Maune v. IBEW Local No. 1 Health Fund, 83 F.3d 959 (8th Cir. 1996); see also Little v. Cox's Supermarkets, 71 F.3d 637 (7th Cir. 1995).

     

    ERISA MEDICARE FEHBP
    Up-Front
    Information Given
    to Enrollees     		YES YES YES
    Formal Appeal
    Process Available         		YES YES YES
    Expedited
    Access to
    Judicial Review    		 YES NO NO
    Strict Fiduciary
    Standards and
    Penalties         		YES NO NO
    State Law
    Remedies
    Preempted    		 YES YES YES
    Recoveries for
    "Benefits Due"    		 YES YES YES
    Recoveries for
    Legal Fees and
    Costs    		 YES NO NO

     

    SUMMARY COMPARISON OF
    CLAIMS APPEALS PROCEDURES AND REMEDIES FOR
    HEALTH BENEFIT CLAIMANTS UNDER ERISA, FEHBA, AND MEDICARE

    INDEX

    I. CLAIMS PROCEDURE

    A. In General

    ERISA

    "A Full and fair" review must be described in SPD given to all beneficiaries.
    Must not contain provision or be administered in a way that inhibits initiation or processing.

    MEDICARE

    Medicare Part A-FFS denial appealed directly to HCFA. Medicare Part B-FFS denial appealed to carrier. Medicare HMO's must maintain procedures for organization determinations concerning providing services or paying claims.

    HMO enrollees may request (orally or in writing) expedited determinations if normal procedure seriously jeopardizes life, health, or ability to regain maximum function.

    FEHBA

    Each health benefits plan carrier adjudicates claims filed under the plan.

    B. Notice Requirement

    ERISA

    Claimants must be informed in writing within a reasonable period of time if a claim is partly or wholly denied.

    Notice of denial must be understandable by the claimant and must contain: reasons for denial; reference to plan provisions; description of other materials needed to perfect claim; and information on steps for appeal.

    MEDICARE

    HMO enrollees must be notified in writing if a service or claim is partly or fully denied.

    Notice of denial must:
    State specific reasons for the determination; and inform the enrollee of his or her right to reconsideration.

    FEHBA

    Each health benefits plan carrier adjudicates claims filed under the plan.

    C. Timing of Notice

    ERISA

    Period of timing for notice of claims denial is unreasonable if in excess of 90-days.

    Special circumstances allow for additional 90-days with written notice of extension.

    MEDICARE

    Claims or service denials must be provided within 60-days of receiving the enrollee=s request for payment.

    Expedited determinations must be provided within 24-hours, but no more than 72-hours of the request; extension of up to 10-days permitted if in the interest of enrollee.

    FEHBA

    Each health benefits plan carrier adjudicates claims filed under the plan.

    II. APPEAL PROCEDURE

    A. In General

    ERISA

    Plans must establish procedure for appeal of denied claims to named fiduciary or designee for full and fair review.

    Appeal procedure must include: right to request review by written application; right to review pertinent documents; and submit issues and comments in writing.

    MEDICARE

    Medicare Part A-FFS denial appealed directly to HFCA. Medicare Part B-FFS denial appealed to Medicare carrier. Medicare HMO's must establish grievance and appeals procedures and provide complete written explanation of appeal rights.

    Request for reconsideration must be in writing and filed with HCFA, the carrier or the HMO.

    Denial of reconsideration may be appealed to ALJ (at least $100 Part A/, $500 Part B). Review of ALJ determination may be requested to HHS Appeals Board.

    FEHBA

    If a plan denies a claim the enrollee may ask the plan to reconsider the denial.

    Request by enrollee must be in writing and give reasons for why claim should not be denied.

    If the plan affirms its denial or fails to respond as required the enrollee may seek OPM review.

    B. Decision Requirements

    ERISA

    Decisions on appeals must be in writing and include specific reasons, reference to plan provisions, and be understandable to claimant.

    MEDICARE

    Medicare Part A or B FFS disputes permit any evidence, oral argument, other written statements. HMO must provide reasonable opportunity for enrollee to present evidence and allegations of fact or law related to issue in dispute.

    FEHBA

    Decisions must be in writing to the enrollee and either: affirm the denial or pay the bill/ provide the service.

    C. Timing of Appeals Decisions

    ERISA

    Plans must allow claimants at least 60-days after receipt of denial to request appeals review.

    Decisions on appeals must be made within 60-days, unless special circumstances require extension for up to 120-days (or longer in circumstances where fiduciary is a committee or board that holds scheduled meetings).

    Claims are deemed denied if an appeals decision is not provided within the required time frame.

    MEDICARE

    Request for reconsideration of Part A or HMO decisions must be filed within 60-days from date of notice of denial; Part B requires filing within 6-months; extensions of filing time must be allowed for good cause.

    Determinations of HMO reconsideration request must be made within 60-days of date of receipt of request. HMO reconsideration goes to CHDR/independent review. Expedited HMO determinations reconsiderations must be decided within 24-hours, but no more than 72-hours of the request for reconsideration; extension of up to 10-days permitted if in the interest of the enrollee.

    Failure to make a determination within 60-days constitutes adverse decision requiring submittal to HCFA.

    FEHBA

    Plans must reconsider initial denials when submitted within 6-months after notice of denial.

    Decisions on reconsideration must be made within 30-days of a timely filed request; if additional information is needed, plan must request within 30-days of timely filed request and decision must be made within 30-days of receipt of additional information; enrollee must provide additional information within 60-days of request. Appeal to OPM must be within 90-days after carrier decisions (or 120 days after request to carrier). OPM must decide 90-days after request.

    Failure of plan to act within 30-days permits enrollee to request OPM review.

    III. JUDICIAL REVIEW

    ERISA

    Review permitted to recover benefits due, enforce rights or clarify rights to future benefits, or enjoin acts or practices that violate terms of the plan, or to obtain equitable relief or redress violations, or enforce provisions. Exhaustion of internal appeals required unless claimant lacks meaningful review, or appeal is futile, or danger of irreparable harm. Permits de novo review where no discretion to plan administrator.

    MEDICARE

    Review permitted by court only if amount in controversy is $1000 or more, and all administrative hearings exhausted. Administrative findings are binding on court, and claimant may not challenge amount of benefit.

    FEHBA

    Review permitted only of "final action" by OPM. Action must be against OPM. Claimant may not challenge amount of benefit.

    IV. REMEDIES

    ERISA

    Limited generally to amount of benefits due under the plan. Permits recovery of attorneys fees and costs where "bad faith" by offending party and deterrence to other persons. Permits action and equitable relief against plan administrator for breach of duty to act solely in interest of participant; may be personally liable, subject to removal or civil penalties. Preempts State law claims that relate to uniform structure of benefits or administration.

    MEDICARE

    Limited to amount of benefits due under Part A or B. No attorneys fees or costs authorized. Preempts State law claims relating to claims that arise under Medicare Act.

    FEHBA

    Limited to amount of benefits due under policy. No attorneys fees or costs authorized. Preempts State law claims relating to benefit terms and conditions under FEHBA.

    V. SCOPE OF APPLICATION

    ERISA

    All employee benefit plans (insured and self-insured) subject to ERISA.

    Collective bargaining agreements.

    State regulated insurance organizations providing benefits or administering benefits for an employee benefits plan.

    Federally qualified HMO's deemed to comply where Public Health Service Act requirements met.

    MEDICARE

    Medicare Part A and B-FFS; HMO's contracting with HCFA to provide Medicare benefits.

    FEHBA

    Health plans contracting with OPM to provide FEHBP benefits.

    For questions or comments, please call William G. Schiffbauer at (202) 467-8533.