Often the first two questions we hear from our clients are:
- Why did they deny my claim?
- What does this letter mean?
Our clients have usually received a letter full of confusing ERISA jargon and terms from an insurance company or a pension plan refusing to pay their claim. So, we've decided to tackle the top 10 most confusing ERISA terms to provide a little bit of explanation.
“Exhaustion of administrative remedies.”
Administrative remedies refer to the claim process procedures that are set out in the rules booklet or the plan document and/or the summary plan description (two more confusing ERISA terms that we will cover in a minute). “Exhausting” the administrative remedies means to provide timely notice of the claim AND present all appeals required by the rules if the claim is denied. Once a claimant has done these things, the claim is exhausted (and perhaps, the claimant is physically exhausted as well!). Sometimes, this letter could require that the claimant to “appeal” the decision one or two times before a lawsuit can be filed in court. If a claimant does not file the required number of appeals, then they will have failed to exhaust the administrative remedies, resulting in the dismissal (and possibly, the loss) of the claim as well as a colossal waste of time and money. There are some narrow exceptions to this requirement.
An appeal is a claimant's submission of all evidence, information, comments, and arguments that reflect that the decision made against them was wrong. It is not simply a letter that says, “I appeal.” Rather, it is important to show, with evidence, every reason as to why the claim being denied is flatly wrong. Providing comments and arguments regarding that evidence is also important. To do this, and really understand the reasons why the claim has been denied, it is critical to obtain the claim file and, of course, the plan document and summary plan description that govern the claim.
“Plan Document” or “Summary Plan Description.”
These are the “rules booklets” we spoke of earlier. Most letters denying a claim state that a claimant has a right to receive a copy of the summary plan description by contacting the plan administrator (sorry, another ERISA term I will get to in a minute!). The summary plan description is the “rule book” for the benefit. It summarizes what benefit is provided, the claim process a claimant is required to follow, the name and address of the plan administrator, and a few other matters. However, the real rulebook is the plan document. If a claimant really wants to know the rules, they need to read it and not just the summary! Sometimes, however, the summary plan description is actually the only document that exists, and thus it is the plan document. You see how confusing this can be! Requesting a copy of the plan document and/or the summary plan description is crucial to the success of a claim!
The plan administrator is the person in charge of providing the benefit and making the decision on a claim. Often, when an insurance company is involved, it is only as claims administrator. The plan administrator may be the employer, the owner of the employer, a manager working for the employer, a committee, etc. The possibilities can go on and on. Look in the plan document or summary plan description for the name of the plan administrator. The plan administrator makes the decision about what benefits to provide to employees. If that benefit is an insurance benefit, then the insurance company will usually decide the claim, because the plan document will provide that the plan administrator delegated all decision making regarding benefit claims to the insurance company. This can get very confusing, because technically the plan administrator is supposed to be in charge. But if it delegated decision-making, then the plan administrator has delegated part of its obligation to the insurance company. However, as to providing plan documents and some forms, the employer or plan administrator may still have that obligation, as well as other obligations. Under ERISA, the plan administrator remains liable as the entity in charge. A common example of this is the health insurance benefit that many employers provide. The employer may well be the plan administrator, but Blue Cross or another provider is deciding the claim, not the employer.
The peer reviewer is the doctor hired by the insurance company to review medical records and give an opinion. Technically, a peer review is a process of subjecting the opinion of a treating doctor to scrutiny and pointing out with data where it is wrong, questionable, or correct. However, much too frequently, instead of assessing the treating doctor's opinion, the peer reviewer renders a different opinion without a medical examination of the patient. For example, a doctor might state that, after a claimant's five back and neck surgeries, they must not stay on their feet for more than an hour at a time without a significant rest break of 30 or 45 minutes in between. A peer reviewer, who does not actually perform a peer review, may simply state that they reviewed all of the claimant's medical records, and they are capable of staying on their feet eight hours every day, 40 hours per week, 52 weeks per year. Insurance companies and plan administrators of self-insured plans often hire peer reviewers to obtain such opinions. It permits them to have a basis to deny the claim. Unfortunately, these doctors frequently only render opinions for insurance companies. Many clients are disappointed by this. A true peer review will point out, with data from the records, where the doctor's opinions are unsupported, unfounded, or weak, and state why a different opinion is more appropriate. However, that just doesn't happen very often in practice.
“Reservation of discretion” and “arbitrary and capricious.”
These are “code words” that refer to the power of the plan administrator and claims administrator to decide the claim. This power means that, if a lawsuit must be filed because the claimant believes the decision is wrong, the judge must give preference to the decision made by the plan administrator and claims administrator. That is, the decision cannot be reversed unless it is shown to be arbitrary and capricious. Under this power, which we call the standard of review, a judge is not permitted to simply substitute their decision for that of the plan administrator or claims administrator. However, the judge is also not permitted to merely rubber stamp the decision.
That power must be given in the plan document to the plan administrator or the claims administrator. This plan provision reserving discretion, then, elevates the final decision to a status such that a court may only overturn the decision if that decision is both wrong and without any reasonable or logical basis. Thus, the decision is arbitrary. Most of our clients have these types of plans, which have reserved discretion in them. Whether the claim is paid will largely depend upon the type of company, and even the type of individuals employed by that company to decide the claim, rather than the evidence in the case. Yes, some companies are much worse than others!
Offsets are monies that are received but which reduce the benefit a claimant thought they had. For example, a claimant may receive a long-term disability benefit of $2,000 per month. Then, a year later, they begin receiving Social Security benefits of $1,800 per month. If their plan provides that Social Security, monies are offset from their benefit. In turn, that reduces their long-term disability benefit to only $200 per month. Offsets in plans are critical to understand, as offsets can turn an otherwise good benefit into little or nothing. Many policies take it a step further and also reduce the benefit by the amount that their spouse or any children receive due to their disability. Some plans have offsets for retirement benefits, 401(k) benefits, and the list goes on.
“Independent medical examination” or “IME.”
An IME refers to the physical examination of a claimant by a doctor that has been hired by the plan or claims administrator. Any doctor, of course, could be hired to do this, but be aware the same few doctors are typically hired by virtually every insurance company. (They are “hired guns” whose livelihood is largely dependent on providing reports for insurers.) This exam is permitted if the plan document reserves the right to conduct this examination, and most plans do. However, most of the time, the plan document does not specify where the exam may take place and whether a witness or videographer may be present. The examination may require the doctor to perform routine matters, such as taking blood pressure, weighing the client, reviewing records, asking questions, and listening to internal organs. However, the doctor may attempt to manipulate the client's extremities and require kneeling, bending, and so forth. Injury and extreme pain have been documented by some clients. Also, exams that were incomplete and inaccurate have been documented. Many other concerns may also exist, so it is wise to request that a witness be present and that the exam be videotaped.
“Change in definition.”
A change in definition refers to a long-term disability plan which changes the definition of disability at some point in time, after benefits have been paid for several months or even years. The point in time when the definition of disability changes is called the “change in definition date.” Many disability plans start off paying a benefit if a claimant is disabled from performing all of the duties of their own occupation. However, after one, two, or three years (or whatever the plan provides), the definition of disability changes to an inability to perform any occupation. For example, if a claimant is the manager of a restaurant and they become disabled, their disability plan may pay a benefit for two years. Then, the definition may change, and they must prove that they are disabled from performing any occupation. That could include being a dishwasher, a waiter, or an occupation they may have never heard of—such as a sorter. Some plans are a little more helpful and provide that the occupations considered must pay 60 to 80% of what a claimant was previously earning, and a claimant must be eligible to perform that occupation based on past education training and experience.
Penalties are monies a federal district court may award to a client when the plan administrator fails to provide a plan document or other instrument under which the plan is operated. Usually a claimant is required to request the plan document or other instrument in writing from the plan administrator. Thereafter, the plan administrator has 30 days to provide the document. If it fails or refuses to do so, a lawsuit may be filed asserting a statutory penalty claim, asking a federal judge to award penalties against the plan administrator. The penalties can be up to $110 per day. Additionally, if the plan administrator fails to provide COBRA notice when an employee is terminated while covered by health insurance, a penalty claim may be asserted for that as well – if certain requirements are met. The penalties are designed to induce plan administrators to be forthcoming in providing documents and notices as required by law.
As you can see, ERISA terms and jargon can be very confusing, and that lack of understanding can lead to your being penalized later for not following the claims procedures. This is why it is crucial to contact one of our experienced ERISA attorneys to help guide you through this confusing process. We are comfortable in federal court and are knowledgeable of ERISA. We serve as ERISA counsel throughout Alabama and Mississippi and regularly travel to our clients, so they can meet with us face-to-face. We regularly represent clients in Huntsville, Mobile, Birmingham, Montgomery, Dothan, and Florence, Alabama, as well as clients in Columbus, Meridian, Jackson, Hattiesburg, Tupelo, and Gulfport in Mississippi, and surrounding areas.