Some Thoughts on MetLife
The Supreme Court held in MetLife vs. Glenn that conflicted interests require a higher standard of review whenever the claims adjudicator and the claims financier were the same. Thus, any claim contested in court will confer a significant advantage to the arrangement where the claims are adjudicated by an independent third party and paid by an independent employer. This means a disadvantage where the claims are both adjudicated and paid by the same two parties, such as employer’s self-administered and self-funded plan or fully insured plans.
The legal burden on the payer of having to go to court whenever there is a claim in contest will be too great for most plan sponsors. One can argue that there will be an immediate and significant shift from fully insured plans to TPA administered self-funded health care plans where conflicted interests do not exist. The MetLife decision instantly shifted the playing field in favor of the self-funded, TPA administered health plan. In addition, the role of the TPA in the normal administration of self-funded plans will be enhanced because such an arrangement is always free of conflicted interest. The TPA is an independent record keeper and claims adjudicator.
In Firestone Tire & Rubber v. Bruch, 489 U.S. 101 (1989), the Supreme Court explained the appropriate standard of review for courts to utilize when deciding ERISA benefit claims. The Firestone Court held that in determining the standard of review courts should be guided by principles of trust law and under trust law principles, the standard of review would be de novo (i.e., the court would review the documents and evidence itself and determine the result), unless the documents granted the administrator or fiduciary discretionary authority, in which case, the standard of review would be deferential – an abuse of discretion standard. The Firestone Court, however, went on to note that if “a benefit plan gives discretion to an administrator or fiduciary that is operating under a conflict of interest, that conflict must be weighed as a factor in determining whether there is an abuse of discretion.”
A majority of the Court found that MetLife was operating under a conflict of interest; and that conflict of interest should be “a factor” in the analysis as to whether MetLife had abused its discretion. The majority found that, consistent with Firestone, a conflict of interest exists when the entity evaluating and paying the claim are the same. But rather than addressing itself solely to the situation at hand, the Court advised that an “employer that both funds the plan and evaluates the claims” also suffers from this conflict.
The ability to require courts to review benefit determinations by ERISA claims administrators under an abuse of discretion standard has been a key element in promoting the growth of ERISA benefit plans, especially self-funded employer-sponsored plans. The good news is that the Court has upheld that standard. The bad news is that for self-funded employer-sponsored plans, the Court has failed to provide clear guidelines as to the scope of deference courts will give to the claim administrator’s determinations.
Unfortunately, this decision is likely to shape the contours of ERISA litigation for some time to come so it is worthwhile exploring in some detail what the Court did and did not do. The majority was very strong in finding that for both employers and insurers who both fund the benefits and evaluate the claims; there is a conflict of interest. While the majority failed to give precise guidance about how the conflict of interest is to be factored into a court’s deferential review, it did give some hints. If the factors are closely balanced, any one can tip the outcome. The conflict might prove more important if there is a history of biased claims administration, but it might prove less important if the administrator has taken active steps to reduce bias.
The most immediate result of this decision will be that claimants will be seeking greater discovery regarding the process by which the decision was made, how does this decision comport with the history of the administrator’s prior decisions, the relationship of the decision makers to the overall structure and organization of the entity, and other factors that might allow them to prove that the conflict played an improper role. This also means that more benefits cases will require extensive discovery and proceed to trial. Either result will mean the ERISA cases will be more expensive to litigate.
What should claims administrators do in response? Many plans designate the “company” as the plan administrator. It might help, the Court suggested, to “wall off” claim administrators from those with financial control over the entity by giving such authority to a committee or a group of designated individuals. This might be somewhat problematic, since of this group is not to be composed of those connected with financial control of the company, it might seem natural to have those in human resources perform this function, but given HIPPAA’s privacy concerns, one might not want to have those having direct responsibility for hiring, disciplining and firing employees to have access to the PHI of the claimants and their families. Alternatively, employers might look to TPAs to take over the entire claim adjudication process, rather than limiting their role to making initial determinations.
Having clear and comprehensive procedures and guidelines in place that the claim administrator should follow, and make sure they are followed will help in bringing consistency to the process and create more objective standards for claim decisions. All decisions denying claims should articulate the reasons for the determination, how and why the evidence supported the decision, the plan provisions on which it is based, and meticulously follow the Department of Labor’s claim regulation requirements for adverse benefit determinations. The claims administrator should keep all decisions on file so that it can consult prior decisions on file so that it can consult prior decisions to ensure that it is interpreting the Plan in a consistent and reasonable manner. If it believes a different conclusion is justified in the instant case, it should be able to articulate how and why the evidence before it compels a different result. These are reasonable steps that will help to convince a reviewing court that the conflict should be treated as a minimal or irrelevant factor.
What about the situation where the TPA and the provider network are under common ownership? I have a client facing this situation (which was not disclosed at the time the TPA and network contracts were created). It seems that the self-funded plan sponsor is at a disadvantage, because the TPA (which is supposed to help the plan keep claim costs in line) is allied with the network, which has an interest in maximizing payments. Even though the TPA included language in its contract that it was not a fiduciary, had no decision making authority, etc., in practice it simply submits an invoice each month to the plan sponsor, which sure makes it look like it’s a fiduciary and making claim decisions. It looks like the TPA is motivated to extract as much payment for its sister network as it can. Call me naive, but this smells.
Of course it smells and it is a large problem – I look at it clearly as a conflict of interest.