Monday, May 19, 2008

Sick Leave Entitlement

Here is an interesting story from the Washington Post on Sick Leave and the problems its creating at the IRS. Like most federal employees, IRS employees receive 13 sick days annually and use an average of 11. Since they cannot be cashed out at and can be carried forward the average IRS employee had 43 sick days at the end of 2006. Naturally, employees have an incentive to burn them all before retiring--hence the average 85% annual utilization rate.

At the Internal Revenue Service, one employee over a two-year period took sick leave on 13 of the 14 Tuesdays after a Monday holiday

Pretty sweet huh?Sick Days are an entitlement. There is no way to manage an entitlement except to limit its scope while incenting the behavior you seek. Too many private sector firms have sick leave programs with similar charactersistics as the federal sick leave program

Wednesday, May 7, 2008

How does that work? I don't understand

In an announcement May 5, 2008 The Tennessee Department of Commerce and Insurance released a report documenting the results of a multi-state settlement concerning disability claim practices by Unum and its subsidiaries since 2004 and the results are fascinating; 45.1% of group LTD claim decisions were reversed resulting in an additional $558.6M of additional benefits either paid or reserved for future benefit payment.

When you reverse 45.1% of your group LTD claim decisions on appeal you have a fundamentally flawed claim process. Keep in mind the majority of these contracts were likely to be ERISA plans.

Just for fun lets take a look at a portion of the transcript from the oral arguments in the Metlife vs Glenn case argued recently before The US Supreme Court as the justices attempt to discern the standards required to trigger a de novo review when an insurers behavior stemmed from its own self interest creating a conflict in exercising its discretionary authority as both decisionmaker and financial payor under the group LTD policy.

JUSTICE KENNEDY: Does it have to be just 12 the specific decisions? Suppose that
the company does 13 not have clear rules of, what do you call them, 14 firewalls
between the profit side and the claims
processing side. Would that be enough
to cause a 16 greater, more searching standard of review, say de novo? 17 MS. POSNER: I don't think it
would ever 18 result in a de novo review. I think what it is is a 19 factor that
should be weighed with all the other factors
that go to the actual benefits
decision. 21 JUSTICE KENNEDY: So then you're saying, A, 22 the fact that there
is a potential conflict is not 23 enough; B, the fact that there are no
procedures in the 24 company to ensure that the conflict doesn't affect the
judgment, that is not enough either.

1 MS. POSNER: No. I'm not saying that. I'm 2 saying that
if -3 JUSTICE KENNEDY: I'm positing. Does the 4 fiduciary at least have the, the
burden of production to
show that it has established clear lines of
demarcation, 6 firewalls, whatever you call them, within the company? 7 Does it
have at least that obligation going forward? 8 MS. POSNER: No, Your Honor, it
does not, 9 and as the United States -
JUSTICE KENNEDY: Well then, I don't
know 11 what effect you're giving to the fact, as the earlier 12 questions have
indicated, that there is a structural 13 conflict. 14 MS. POSNER: That's a
structural conflict
that ERISA anticipates and, as the United States said in
16 its brief to this court in Pegram v. Herdrich, that 17 ERISA tolerates this dual role and this level of 18
conflict in order to keep these plans that are so vital 19 in our country's
economic interests in underlying the
employee's well-being -21 JUSTICE
KENNEDY: You want us to write an 22 opinion to say that it's irrelevant that a
company does 23 not have procedures to insulate the profit section from 24 the
claims processing section? I'll use those terms.
MS. POSNER: No, Justice
Kennedy, absolutely
1 not. But what we are saying is that if there were
2 a fiduciary that factor must be weighed, but it doesn't
3 change
the abuse of discretion standard.
I don't understand. You go through, you've got a
6 decision,
whatever, it's a health insurance decision
7 that this procedure -- to
determine that this procedure
8 is not covered under the, the plan, that the
9 has the discretion to make that determination. But you
aha, he's got a conflict of interest, so that's a 11 factor we take into
account. Well, how does -- what 12 does that mean? 13 MS. POSNER: It means again,
remembering 14 that these are claims under 29 U.S.C. 1132(a)(1)(B) for
benefits due under the terms of the plan, it's very 16 important that the
courts remember to look at the terms 17 of those plans -18 CHIEF JUSTICE
ROBERTS: All right, you've 19 got two cases, one where the person does not have
conflict of interest under a particular plan, the other 21 where he does.
It's the same decision: We're not going 22 to cover this procedure. How is the
review different in 23 each of those cases as a practical matter?

Of course it is relevant that a company have procedures to insulate the profit section from the claims processing section. That was the impetus behind Unum reorganizing its claims department as a condition of its multi-state settlement. One should keep in mind Unum reversed 45% of its claim decisions while operating under the deferential arbitrary and capricious standard of Firestone
Somehow in these oral arguments Metlife's counsel manages to baffle each and every Justice asking a question and the central issue before the court is Whether an ERISA plan administrator that both evaluates and pays claims operates under a conflict of interest that must be weighed on judicial review of benefit determinations. Metlife showed up with a knife at a gunfight.

Tuesday, May 6, 2008

MetLife Vs Glenn- "That Smells Bad"

A careful reading of the transcript of the US Supreme Court Oral arguments in the MetLife vs Glenn case provides both an entertaining and and an insightful look at the strange world of long term disability claim practices where ERISA case law theoretically intersects actual claim practices. Sausage manufacturing is by comparison a deliberate and sterile procedure that still produces the odd case of e-coli but alas I digress and the core issue before the court is;

Whether an ERISA plan administrator that both evaluates and pays claims
operates under a conflict of interest that must be weighed on judicial review of
benefit determinations.

Most insured LTD plans contain a discretionary clause where state law permits which allows insurers to make claim decisions that are enforceable providing the actions are neither arbitrary or capricious--the standard set down in Firestone Vs Bruch for ERISA plans by The Supreme Court. Trial Lawyers have been seeking to crack ERISA for years and desire a "de novo standard of review". In English we are talking about the difference between a deferential standard--arbitrary and capricious and a much lower bar--de novo. The former requires the claimant to prove an administrators actions were arbitrary and capricious to win and the latter allows a completely new and complete review of the case where a claimant is much more likely to prevail. At stake for employers is significantly higher costs should Firestone v Bruch be modified or should the NAIC prevail in its attempt to remove discretionary clauses from LTD policies( see brief for NAIC in Metlife Vs Glenn). You attorneys should consider that a gross simplification and not legal advice.

Jannell Grenier at Benefits Blog covers these matters very well from a legal perspective as do each of the bloggers linked to her thread.

Without question there are disability insurers who utilize the arbitrary and capricious standard to support claim decisions that would be suspect at best under a de novo review. It was interesting to read the exchange between MetLife's counsel and the justices below concerning how it is conceivable a claimant could be awarded Social Security Disability Benefits and denied benefits following the change in definition to inability to perform any occupation;

JUSTICE GINSBURG: But then you come to the
end of the line. You have to
prove that the authority
6 was misused. And as I understand the Sixth
7 decision, what those judges were doing, they say we're
going to look at this with some skepticism because of
9 the conflict. And
let me give you a concrete example.
This woman got Social Security
disability benefits and 11 she did it at the suggestion of MetLife is; that so?
12 MS. POSNER: She actually applied herself. 13 JUSTICE GINSBURG: But she got a
lawyer that 14 they recommended that she have.
recommended a lawyer to 16 her and also said she could use her own lawyer, which
17 was consistent with the plan design. 18 JUSTICE GINSBURG: But the point is
they 19 came to her and said: Get Social Security disability
benefits. Now,
to get those she would have to show that 21 she is totally and permanently
disabled. 22 MS. POSNER: Correct. 23 JUSTICE GINSBURG: So here is a company that
24 says: Tell the U.S. government that you are totally and
disabled, but -- and then we'll recoup all
11 Alderson Reporting Company 5
10 15 20 25 Official - Subject to Final Review
1 that money that we paid out
to you; but then when we get 2 a chance to look, look it over, we'll say you're
not 3 disabled. Why isn't it appropriate to regard just that 4 set of
circumstances with suspicion?
MS. POSNER: Because, Your Honor, at the 6 time
that that letter was written to the Respondent here 7 in October of 2000, in
fact MetLife had granted her 8 benefits. And the action of helping an employee
perfect 9 their entitlement to Social Security is in fact not a
conflict at
all. It's a fiduciary obligation under the 11 terms of a plan and it helps the
employee as well. 12 JUSTICE GINSBURG: Yes, I'm not questioning 13 that at all.
14 MS. POSNER: When -
JUSTICE GINSBURG: That sounds fine. It's a 16 question
of why, after helping her tell the government 17 that she was totally disabled,
they, after the initial 18 two-year period, turned around and said she's not. 19
MS. POSNER: The -- the reason is -- and
it's unfortunate that often Social
Security makes the 21 same decision that the plan fiduciary has made two years
22 earlier, and the government is looking backwards at 23 certain evidence that
may not be before the ERISA plan 24 fiduciary. The ERISA plan fiduciary at that
point is looking at that evidence at that time and at a
Alderson Reporting Company 5 10 15 20 25 Official - Subject to Final Review
1 change in the terms of the plan. 2 JUSTICE SCALIA: Ms. Posner, it seems to
me 3 that that ought to be looked at with suspicion, whether 4 or not the person
making the decision has a conflict. I
mean that smells bad or doesn't smell
bad, as you say, 6 either way. 7 MS.

Monday, May 5, 2008

Wal-Mart Expands $4 Generics Program

Wal-Mart has expanded its $4 prescription drug program it include a 90 day supply for $10 and OTC drugs have been added. Lot of drugs are included here folks.

I wonder when PBM's are going to figure out their business model is in trouble?

Saturday, May 3, 2008

Fire Up That BBQ Pit

So fire up that smoker and pop a top. Its all good.
By the way ground corn fed brisket makes the best burgers as well.

Friday, May 2, 2008

Stepping Over The Line

Yesterday evening I met an individual who works in management at a local ford dealership who gave me a business card and invited me to call him if he could ever be of assistance. He was a very gracious individual until told the following; I drive a Ford F-150 today but I informed him my next truck was likely to be a Toyota Tundra. Over the next few minutes I listened to a discussion of the myriad quality problems Toyota is experiencing. This is not particularly surprising. We expect car salesmen to talk up their own products and talk down the competition.

In the vendor selection and contracting for employee benefit service providers an employer however has the expectation they will receive unbiased and objective guidance from a consultant. I mean none of us would be stupid enough to hire the Ford Salesman to guide a selection of a new truck and expect objective opinions about the Chevy, Dodge, Nissan and Toyota alternatives, right?
Consider the curious case then of Hewitt Associates which guides employers in the selection of vendors and carriers for their employee benefit programs in addition to providing HR and Benefit Outsourcing Services. Hewitt has announced the acquisition of LCG Consulting a provider of total absence management solutions.
Does this mean Hewitt will cease vendor selection consulting jobs in the field of absence management? Did I miss that press release? How will they maintain any objectivity in evaluating absence management capabilities of companies and vendors who compete with Hewitt and why on earth would these companies ever want to allow Hewitt Consultants to obtain an insiders perspective of the systems, services and processes they utilize to deliver absence management solutions?
Is it not interesting how what is a clear conflict of interest for the car salesman is somehow justifiable in the world of consulting?

Thursday, May 1, 2008

Houston We Have A Problem

Yesterday, The Houston Comical ran an editorial chastising insurance companies for being unwilling to sell health insurance policies that did not provide the margins they desired. I guess that makes sense if your business model is in decline or you're a closet Marxist out of touch with the news reported in your own paper.

For instance

Here we learn the following from Elena Marks who is Houston Mayor Bill Whites Director of Health and Environmental Policy;

...the swelling ranks of the uninsured are severely stressing local hospital emergency rooms and driving up medical costs for those with insurance.

The census bureau reported yesterday that Texas leads the nation in the growth in its Hispanic Population.

This blog reported last year on some key facts about the uninsured in TX as noted below;

The Texas Health Institute, a nonpartisan health advocacy group, described them this way in a report that was released in January:
• They work. At least 72 percent live in households where one or more family members work full time.
• They are young. Twenty-three percent are children, and an additional 36 percent are between 18 and 34.
• They are not all poor. Forty percent of families without coverage have incomes of $40,000 a year or more.
• Geography matters. Almost half of the uninsured live in Texas' five largest urban centers, and Harris County leads the pack with about 1.1 million, according to state estimates.
• Ethnicity matters. Hispanics are three times more likely to be uninsured than whites; blacks are twice as likely.

So lets break this down for the Marxists at The Houston Comical Editorial board who could not even wait for May Day to bring us that observant editorial yesterday.

  1. We have a growing population of uninsured Houstonians.

  2. Our uninsured population has learned they can access free care at Houston Hospitals. Why pay a premium for health insurance when you get services for free at the ER?

  3. The number of Hispanics in Houston is growing and they are three times more likely to be uninsured.

Insurance carriers have been offering low cost limited medical benefit policies for several years to allow for basic health coverage for a premium equal to two hours of weekly wages. Many employees still do not enroll. Why? See #2 above