MetLife Vs Glenn- "Clear As Mud"

The US Supreme Court has issued its opinion in the MetLife vs Glenn case. Roy Harmon III has done a nice job summarizing the opinions of various ERISA attorneys which are well worth a review http://healthplanlaw.com/?p=650.

Not being an attorney(thank God!) I can nevertheless offer some observations as a disability professional which can not be considered legal advice but certainly offer insight into a decision which is about as clear as mud upon first reading;

1. Firestone has certainly been breached
2. If you doubt conclusion #1 see Brian King's take here, I happen to agree with Brian on where the trial lawyers will go to prove a conflict.
3. I have already commented here on the poor argument set forth by Metlife's counsel in oral arguments which got Justice Alito to join the majority

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
7
1 not. But what we are saying is that if there were
such
2 a fiduciary that factor must be weighed, but it doesn't
3 change
the abuse of discretion standard.
4 CHIEF JUSTICE ROBERTS: How does that
work?
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
fiduciary
9 has the discretion to make that determination. But you
say,
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
a
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.

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
Circuit's
7 decision, what those judges were doing, they say we're
8
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.
MS. POSNER: MetLife
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
permanently
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
two-year
point is looking at that evidence at that time and at a
12
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.

Tips From an Independent Benefits Consultant

• You have the right to hire and fire your benefits consultant or broker.

One of my customers owns a construction business with several hundred employees. During my initial visit with the owner I discovered they had been told one owner would need to lose weight in order to obtain disability coverage. I pointed out a group LTD plan could be implemented on all 20 salaried personnel for less than the cost of individual disability on the two owners and it come Guaranteed Issue. After being hired I was successful in placing LTD coverage and further reducing a 45% health plan rate increase to 20% with the incumbent carrier. Your customers do not tolerate bad advice from your firm so why not hire someone who focuses on your issues and offers sound counsel?

• Eliminate inefficient insurance costs

Insurance should be secured for catastrophic risks. Many employers continue to fund dental coverage when the annual maximums are limited to $1,000 or $1,500. This is not catastrophic protection and the cost can easily fund a risk that is catastrophic like disability for instance.

• Try Fixing service problems with vendors before Firing Them by dealing with the right vendor personnel.
  

Too many consultants and brokers begin a new relationship by replacing incumbents without any effort to resolve the underlying cause of a service related issue with the incumbent. In a vendor relationship as in a marriage communication is always less painful than a divorce. A competent consultant can often resolve issues with an incumbent thus eliminating a costly and time consuming vendor search and implementation. Several years ago a very large hospital system was facing a mid rate guarantee increase from their group life and disability insurer. After meeting with the employer and their carriers underwriters we were able to eliminate the rate increase altogether for Life and mitigate the needed increase for LTD plan. If we had not sat down face to face with the client and their vendors underwriters an agreement would never have been reached. If you have not met your underwriter face to face how can you have a relationship?

• Align funding, plan design and objectives

Several years ago I met with a customer with several thousand employees had a participating group life insurance plan and a self-funded Long Term Disability plan with an extremely limited benefit offering. The customer hated the cash flow fluctuations inherent with the minimum premium funding arrangement for Life and the FAS 112 exposure associated with the LTD plan.I recommended they needed to take advantage of the fixed cost of a fully insured life insurance plan and shift to a fully insured LTD plan. By changing the funding arrangement the employer was able to save over $100,000 annually while enhancing Life and Long Term Disability Benefits and generating a predictable monthly cost while eliminating future FAS 112 exposure.

• Boost your pharmacy generic utilization rate

Statistics show that only 33% of physicians discuss generic drug options with their patients and patients only bring the subject up 2% of the time to their doctors. It is possible for an employer to secure a PBM which will utilize a simple process and plan design to assure insureds are encouraged systematically to utilize the low cost in therapeutic class generic alternatives. This change alone can take many employers from an 8-10% pharmacy trend to flat or even negative territory.

• Demand relationships not transactions from consultants and brokers

The service models of many intermediaries at many broker and consulting firms is oriented towards their interests versus their clients. This is particularly true at many publicly traded firms where revenue growth and the pressure for billable hours focuses intermediaries on securing new business primarily while seeing that the service staff maintains just enough dialogue with existing clients to retain their revenue. Our clients deal exclusively with a principal who understands their objectives and translates them into plan design and actionable expectations for vendors so that a relationship rooted in performance over time. Our goal is a relationship not a transaction.

Pay No Attention To That Man Behind The Curtain

Two former executives of Marsh went on trial April 10, 2007 in Manhattan's NY Supreme Court with scheme to defraud, grand larceny and restraint of trade and the details are covered in an AP story by Samuel Maull here.

Their lawyers say the state attorney general's office did not like the way their clients worked but the defendants did nothing criminal.

The prosecution says the defendants and others conspired with brokers and other insurance companies to arrange noncompetitive bids for New York-based Marsh & McLennan's corporate customers from November 1998 to September 2004.

(defense lawyers)...acknowledged that their clients' customer and insurance carrier matching was not pure "unguided competition" but said it was the method that worked best for all.

They said some carriers are not suited to, nor are they interested in, insuring specific kinds of businesses. They also said Marsh helped companies keep a client's business because of benefits to both: There are no gaps in coverage, and there is more stability in premium costs.

They face 25 years if convicted. Whether they are ultimately convicted who knows? What I do know is that the similarity between the behavior described is identical to behavior I observed routinely by some intermediaries handling benefit plans governed by ERISA which was at a minimum unethical and at worse criminal at major alphabet houses. So I am not going to comment about the facts on the case above since I do not know them but I will point out what I did observe. Here are just a handful of examples.

1. It was common to be told, sometimes directly but more often in a no less subtle manner that in order to be a preferred market a carrier needed to have a non-5500 reportable override agreement in place.
2. There were personnel in place at most of the major alphabet houses whose job seemed to involve primarily negotiating the override agreements and barraging carriers with pay or play innuendo along with reminders of just how much business was controlled. In short there was the A list and the B list. Guess who earned most of the business?
3. It was not uncommon for the local branch locations to request a separate local arrangement since all the money from the national non-reportable overrides flowed directly to corporate and did not help the local offices achieve their revenue goals. "Can you help us, so we can help you with your goals?"
4. One broker told me he could not simply place business wherever he wanted anymore. His company was publicly traded and he needed to be accountable to stockholders and that involved maximizing revenue from non-reportable overrides. He needed a level 15% commission plus a level 5% override. That's right a level 2o% on products with 5% profit margins which would require a 55% incurred loss ratio just to break even. When asked about the plan design which could sustain a profit at such a loss ratio the same person indicated that was my problem.
   
5. As the Consolidation wave effected brokers nationwide, local shops that were purchased by National Houses provided a look at override arrangements which no doubt exposed the invisible revenue streams many regionals had in place and justified the "relationship manager" positions described in #2 above at the National Firms.
6. Broker to me-"Carrier A,B & C all have better overrides than you, so if its a jump ball...are you sure we could not beef up the arrangement? I mean you are so close"
7. If conduct was not pure unguided competition would it not logically follow it was patently guided competition?
   

The issue is disclosure. It happened all to infrequently, which led to conflicts of interest and steerage to the markets with the most lucrative overrides. Spitzer had only started chipping away at the tip of the iceberg. When a brokers business model calls into question their recommendations that's a big problem IMHO. But that's just me. Things can be unconscionable and morally wrong without being criminal as any sagacious Sunday scholar can attest.

So lets hear from a few carrier personnel. Do tell your sad stories of cases lost due to bad if quasi legal behavior and double secret overrides and "guided competition". Use the anonymous button if you must.