Long-Term Disability Insurance for Doctors
ERISA Versus Non-ERISA Policies
Last month we talked about long-term disability insurance (LTDI) for professionals in general and medical doctors in particular. That article discussed the different types of LTDI policies (“own occupation” versus “any occupation”) and covered some of the reasons you might want to have LTDI coverage. Today, let’s delve into another distinction between types of LTDI policies – ERISA and non-ERISA – and why it matters.
What Is ERISA?
ERISA is the fun, shorthand way of saying Employment Retirement Income Security Act of 1974, which is a federal law regulating certain employer-sponsored benefit plans, such as employee health insurance, life insurance and long-term disability insurance policies. ERISA covers such plans when voluntarily established by private-sector employers.
ERISA imposes a number of obligations on plan administrators. Under ERISA, plan administrators must disclose benefits and other features of the plan to participants, and plan administrators act in a fiduciary relationship toward participants. As fiduciaries, plan administrators must act in the best interests of plan participants and avoid making decisions that would conflict with those interests or show loyalty to other interests. Plan participants could sue administrators for breach of their fiduciary duty.
Importantly, ERISA requires plan administrators to establish a grievance and appeals process for plan participants who have their claims denied or face other adverse actions regarding the plan.
Why Does It Matter?
ERISA might have been initially billed as a measure to protect workers, but somewhere in the last 46 years, it came to be viewed as more favorable to the employer and plan provider. The grievance and appeals processes contain strict timeframes and procedures, as do the timelines for applying for benefits or filing a lawsuit. Any claim denial complaint must first go through an internal review and appeal with the insurer. Only after this administrative process is exhausted can you file a lawsuit. This lawsuit must be filed in federal court, with further strict timelines and procedures.
During the internal appeals process under ERISA, your ability to obtain information, evidence and documentation from the insurer (known in litigation as “discovery”) is limited. Despite this limited discovery, any evidence you present and arguments you make up the official record. If you later appeal to federal court, the judge will be limited to the evidence you presented in the administrative process, making it difficult to win at both the administrative level and in court.
If you do succeed in federal court, the damages you can receive are limited to the value of the benefit that was denied to you. It can be difficult and expensive to pursue a claim this far for an award that might not seem worth the trouble. However, if the insurer is issuing similar blanket denials to other policyholders, as is often the case, you might be in a position to bring a class-action lawsuit against the insurer. With a class action, you are more likely to interest a high-quality law firm to take your case and force the insurer to change the way it reviews and decides on requests for treatment.
What if My Plan is Non-ERISA?
If you bought an LTDI policy on your own or through a professional association such as the AMA, then your plan probably is not governed by ERISA. Individual policies often have better terms and benefits than group plans, and benefits paid are tax-free, so an individual policy is certainly worth a look.
As an individual policyholder, however, the insurer might not have as strong an incentive to retain your business as is the case with a large employer. They might therefore be more inclined to drag out your claim for an unreasonable period or deny you altogether. If you have a non-ERISA policy and your claim gets denied, the process for appealing that denial might look a little different from an ERISA-regulated plan. You might still need to file an internal review/appeal with the insurer depending on the plan documents. However, if you later go to court, you are not limited to the evidentiary record developed at the administrative level, as you are in the ERISA world.
In California, insurers must give policyholders notice about how to appeal a denial. If the claim denial is based on an alleged lack of medical necessity, an argument that the requested procedure is experimental or investigational, or denial of a request for emergency or urgent medical services, insureds can file for an Independent Medical Review with the California Department of Insurance (CDI). The decision of the CDI is binding on the carrier, but you can still go to court if you choose.
With a non-ERISA plan, you file in state court rather than federal court. If successful in your case, you can recover the value of the denied benefit, as in an ERISA case, but you can also recover other significant damages such as pain and suffering and emotional distress. If the carrier’s behavior was unreasonable, you might have a bad faith claim as well and be able to recover punitive damages. These broader categories of money damages greatly increase the value of a non-ERISA claim compared to one governed by ERISA rules.
Get the Right Kind of Legal Help When Your Claim Is Denied
After an LTD denial, you’ll probably want to visit with an attorney about your case. Be sure that the lawyer not only practices insurance law but has handled ERISA cases. An attorney unfamiliar with ERISA might not pay sufficient attention to the administrative level and discovery process, which can hamstring your chances of success in court. You’ll also need a lawyer who can review your policy at the outset and determine whether ERISA applies or not so that you proceed accordingly with your appeal and file the right type of claim in the proper court.
