If you sponsor and administer a self-insured health plan, do you have a conflict of interest if you also decide which claims are going to be paid? According to the United States Supreme Court in Metropolitan Life v. Glenn, the answer is "yes." And that conflict could make a difference in how a court evaluates your decision denying a claim.
In Metropolitan Life, Wanda Glenn sought benefits under her employer's long-term disability plan. MetLife both administered and insured the employer's plan. Under the plan, Ms. Glenn would be entitled to long-term disability benefits during the first 24-months if she was unable to perform her own job, but thereafter would be eligible for benefits only if she met the more stringent Social Security definition of being unable to perform any gainful occupation for which she was reasonably qualified.
After she applied for benefits under the plan, MetLife encouraged Ms. Glenn to apply for Social Security disability benefits, and even referred her to a law firm that could represent her in that claim. If Ms. Glenn were successful in her claim, she would receive not only benefits going forward, but also a retroactive award of benefits back to the date of her disability—and MetLife would be entitled to those retroactive benefits as a setoff for the more generous benefits that MetLife provided.
The employee applied for and ultimately obtained Social Security disability benefits. Even though MetLife had encouraged Ms. Glenn to apply for Social Security benefits and benefitted from that determination, it denied her claim for benefits after the initial 24-month period, taking the position that Ms. Glenn was capable of performing long-term sedentary work. Ms. Glenn filed suit, and the Sixth Circuit Court of Appeals set aside the denial of benefits.
In reaching its decision, the Sixth Circuit looked at a number of factors, including (1) that MetLife as both administrator and payor had a conflict of interest; (2) MetLife's failure to reconcile its conclusion with the Social Security Administration's conclusion; (3) MetLife's relying upon one treating physician report suggesting that Ms. Glenn could work in other jobs and ignoring more detailed physician reports indicating that she could not; (4) MetLife's failure to provide all of the treating physician reports to its own hired experts; and (5) MetLife's failure to take into account evidence indicating that stress aggravated Ms. Glenn's condition.
MetLife filed an appeal with the United States Supreme Court and asked it to determine whether a plan administrator that both evaluates and pays claims operates under a conflict of interest. The Supreme Court answered that a conflict of interest exists in such circumstances. The Court noted that with respect to employers who administer their own plans, the answer is "clear" because in such a circumstance, every dollar provided in benefits is a dollar spent by the employer, and every dollar saved is a dollar in the employer's pockets. On the other hand, the Court noted that the conflict may not be as clear when the plan administrator is not the employer, but that it still believed that in such circumstances a conflict still exists.
Even though the Court found that there was a conflict of interest when the administrator both pays claims and decides appeal, this does not automatically mean that every decision denying a benefit is suspect. In fact, the Court confirmed that where a plan gives the administrator the discretionary authority to determine eligibility for benefits, a court is to use a deferential standard of review and overturn such a determination only if there has been an abuse of discretion. The impact of the conflict of interest is one of the factors that a court should weigh in deciding whether there has been an abuse of discretion. The significance of this conflict will vary, depending on the circumstances. On one end of the spectrum, the Court provided an example of an insurance company administrator that has a history of biased claims adminstration. On the other end of the spectrum, the Court acknowledged that the conflict would be less important—"perhaps to the vanishing point"—where the administrator has taken active steps to reduce potential bias and to promote accuracy.
The Supreme Court's ruling is certainly an invitation to courts to more closely examine the potential impact of the conflict, and we can expect to see plaintiffs putting more emphasis on the conflict of interest issue with the hope of getting a judge to give less deference to the plan administrator's decision denying a claim. This means that plan administrators should evaluate their claims procedures to see how they are structured. One option for employers is to outsource claims appeals to a third party administrator who is not involved in payment of claims. Insurers may want to build firewalls between those who pay the claims and those who decide claims appeals.
Warner's Employee Benefits Practice Group specializes in working with employers to establish fair claims and appeals processes. If you would like assistance with your claims appeals process, please contact a member of the Employee Benefits Practice Group.