All insurance companies have a legal, contractual accountability to perform all duties under the terms of the policy and to pay those claims that should be paid and deny those claims that should not be paid. In the performance of these duties all insurers are required to review claims with “good faith and fair dealing.”
If disability insurers would do that there would never be a problem. Unfortunately, all U.S. disability insurers have come to realize it is impossible to make a profit, or at least a sustainable one, “just doing the right thing.” Disability insurance has become big business with the potential of accumulating huge investment portfolios and profits. The entire industry involving the collection of premium based on the laws of large numbers and the assumption of risk cannot operate in the black without aggressive “risk management.
Disability insurers, unable to make a profit on the legitimate pay/not pay principle, seek to manage the risk and profitability of selling disability insurance policies thereby reducing the number of claims paid.
What does this mean in plain language? In order to make the disability claims product profitable, insurers must DO something to deny compensable claims in addition to those which should legitimately NOT be paid. There’s no money in just denying the bad or fraudulent claims and this is where insurers begin to get themselves in trouble.
In a way, ERISA is wrapped around the concept of “discretionary authority” because the law actually allows the insurer a great deal of “discretion” in deciding which claims are to paid and those not. In ERISA once this decision is made, even the judge must agree with the insurer unless it is found the insurer acted in an “arbitrary and capricious” manner.
A handful of states along with the National Association of Insurance Commissioners (NAIC) have gone on record as stating “discretionary authority” is not conducive to fair and equitable claim file review. Some states have actually outlawed the provision. Surprisingly, it’s been the southern states that have been holding out.
Still, “discretionary authority” is the primary way in which US disability insurers have managed the system to transfer their risk to the insured. When the fox is in charge of the hen house potentially ANY compensable claim can be denied merely on the say-so of the insurer.
Although “discretionary authority” is the beginning of that “stacking of the deck” you hear me talking about so often, independently, disability insurers concoct internal review strategies deliberately intended to produce higher volumes of denied claims.
A good example was Unum Life Insurance’s “blue memos” which directed the claims handlers to deny claims under certain conditions outside of the policy contract. Another internal strategy used by Prudential was to require the application of an “objective evidence standard” to all claims before the claim was approved. The problem was (and still is) most disability policies do not require objective evidence as proof of claim.
In fact, Unum claims handlers were so brainwashed about needing “objective evidence” to pay claims most were amazed when they were told to actually find the provision in the policies, and never found it. Occasionally, I still read Unum’s internal medical reviews written to say, “There is no objective evidence to indicate…….” This particular strategy was taken to the extreme when “objective evidence” was also required for mental and nervous claims. This crosses the line.
Disability insurers also cross the line of good fair and fair dealing by “snatching” key medical phrases from patient notes favorable to it, at the expense of all else contained in the notes favorable to the insured. This is a common strategy which is particularly egregious and deliberately harmful to the payment of legitimate claims.
Medical review personnel become quite skilled in their ability to mis-state, and misinterpret patient medical records in the company’s favor. Although medical records should be reviewed with the intention of arriving at a consensus as to what the insured’s actual work ability is, most insurers “look for” and “snatch” key phrases which if misstated create the illusion of work ability.
The creation of Aesop’s fables crosses the line and borders on internal insurance fraud with deliberate intent to harm. Insurance management which approves any “pattern of business practice” involving the documentation of false information from medical records for the purpose of deliberately denying the claim should be held accountable through a RICO action.
Most disability insurers target select groups of claims with specific criteria for the deliberate purpose of denying claims within that group. The most recent example is Unum’s targeting of Anesthesiologist residual claims where its medical reviewers generated review documents claiming the physicians could work in excess of 50+ hours a week.
Claims can be targeted by impairment, such as FMS or CFS, or by characteristic and occupation, such as all 9-18 month paid claims requiring any occupation investigations. Targeting and discriminating within insurance product groups, impairments, characteristics, or otherwise is representative of deliberate actions taken on the part of the disability insurer to deny claims within certain groups.
How can these claims possibly be reviewed fairly when the same risk management activity is applied to each one for the same purpose? Targeting of disability claims for the deliberate purpose of terminating benefits crosses the line.
Basically, at any time when the disability insurer deliberately “does something” with the intended purpose of causing claims to be denied, completely disregarding a preponderance of evidence in support of the insured, it has crossed the line of “good faith and fair dealing.”
In addition, insurers who deliberately, and consistently engage in misstatement of facts, and misinterpretation of medical patient notes, lab reports and records, for the purpose of creating a false impression in order to deny claims also crosses the line and should be brought into lawful accountability for their actions.
Remember, disability insurers cannot “play it straight” and make a profit – the only way to give shareholders their dividends is to cross the line and deny legitimate, compensable claims along with the 10-15% that shouldn’t be paid in the first place. One heck of a system isn’t it?
