ERISA – Some Legal Standards

Employee Retirement Income Security Act (ERISA).  These types of plans are loved by insurers and not so much by the insured.  The reason is that so often, the decisions of plan administrators are final in that the courts uphold their decisions.  A Southern District, Galveston Division opinion is good reading to illustrate this favoring of the ERISA plan administrators.   The opinion is styled, Kristin Walker v. Regency Blue Cross Blue Shield of Oregon.

After citing some lengthy and convoluted facts the court’s opinion read thus:

This Court had previously found the plan to be covered by ERISA.  A claimant must exhaust all available administrative remedies before filing suit.  An exception to this rule found in 29 C.F.R., Section 2560.503-1(g) wherein there is non-compliance with requirements.

Under an abuse of discretion standard a Court must determine whether the plan administrator, first, correctly interpreted the plan.  In answering this question, the Court must consider (1) whether the administrator has given the plan a uniform construction; (2) whether the interpretation is consistent with a fair reading of the plan; and (3) any unanticipated costs resulting from different interpretations of the plan.  Second, the Court must determine whether the administrator abused his discretion in handling the claim.  A plan administrator abuses its discretion if it acts arbitrarily or capriciously.  In addition to not being arbitrary and capricious the plan administrator’s decision to deny benefits must be supported by substantial evidence.

Kristen did not exhaust exhaust plan remedies before filing suit but argues she is excused because the administrator did not follow Section 2560.503-1(g).

The EOB from Regency states “This service is not payable.  Refer to the specific Exclusions section in the member’s benefits plan.”  One problem with this non-specific notification is apparent since, as Regency pointed out, it actually paid the “not payable” claim.  Another problem is that the referenced “Exclusions” section of the Plan offers absolutely no enlightenment on why the claim was so meagerly paid.  There is case law to support Kristin’s argument that the administrator’s failure to comply with the regulatory requirements will result in a finding that a claimant shall be deemed to have exhausted the available administrative remedies.  There is no evidence in the record that Regency ever communicated the specific reasoning behind its determination of the disputed claim.

Kristen makes an argument that Regency’s procedural defense should fail.  The Court, however, need not make that finding because even assuming Kristen were deemed to have exhausted the administrative remedies, the record supports the conclusion that the administrator correctly interpreted the Plan in his determination of the claim.

The Plan itself gives the administrator the discretion to “overpay” a provider as was the case here.  But the exercise of that discretion to arguably “overpay” a particular claim, does not result in the future relinquishment of that discretion as to any subsequent similar claim.  (Here, the administrator had overpaid an initial claim and then refused to pay later claims creating a huge financial hit on Kristen).  Accordingly, the administrator’s determination of the claim is consistent with a fair reading of the Plan’s discretionary “Exception” provisions; unfortunately, for Kristen, the administrator on this occasion exercised his discretion to not apply the exception.

Having found that the record supports the administrator’s decision in both payment situations, Kristen has offered no evidence beyond speculative inference, that the administrator’s determination of the reasonable amount payable for the claim was erroneous.  Thus, Kristen’s claim for additional benefits is without merit.