The purpose of this article is to be an educational and informative resource to private disability insureds interested in obtaining basic information concerning “Appeals”. It is not intended to be legal advice. DCS, Inc. refers all of our clients with disability claim denials to experienced, successful attorneys who can provide legal advice consistent with ERISA, or with state laws.
The content of this articleis based on my insurance education, work experience as a claims specialist, experiences as an expert witness, and as a consultant and former educator – a career of nearly twenty-five years. More detailed information about ERISA and the appeals process can be obtained by contacting an ERISA attorney in your state.
At the end of this article, insureds and claimants should be able to:
- Identify the reasons why insurers deny claims and the conflicts of interest involved when insurance companies are both reviewers and payers of disability claims.
- Identify the various parts of a denial letter and understand why the insurer alleges it denied the claim.
- Understand what a claim appeal is and identify your Plan/policy as federal or state jurisdiction.
- Understand “discretionary authority” and the rights of Administrators to deny claims on their sole authority. (ERISA only)
- Learn how to consider future financial consequences and the cost of appealing a claim denial – appealing on your own vs. retaining an attorney vs. not appealing at all.
- Recognize the difference between sending in old vs. new information and identify resources that bolster support of continuing payment of benefits.
- Understand the claim appeal process and what is at stake if the appeal is not successful.
- Understand the need for attorney representation and why appeals prepared by insureds have a small percentage of success.
- Understand the need to “supplement the Administrative record” not only prior to denial, but afterward as well.
INTRODUCTION
The unexpected just happened. You received a letter in the mail today from your disability insurer informing you the company denied future benefits. It’s a real financial blow to you and your family and you’re afraid about not having any money to pay for your future medical care and household bills. You may be thinking, “What am I going to do now?”
Clearly, most disability insurers risk manage claims with the intent of not paying them. In fact, the entire concept of all insurance is the “law of large numbers” meaning the more policies sold, the less insureds file claims thereby producing greater and greater profit. Therefore, the statistical probability that all policies sold will result in payable claims is zero. The more policies sold, the greater the profit potential is.
However, in today’s economy it has become more and more difficult for insurers to “deny those claims that should be denied, and pay those claims that should be paid” and still make a profit. Therefore, all U.S. insurers I am aware of have review strategies in place that devise internal processes to deny legitimate, payable claims, which at least on paper, appear credible.
In many ways, both insureds and claimants are set-up from the very beginning of the review process. Mistakenly thinking that all one need do is follow and obey the requests of the insurance company, many unknowledgeable insureds hand over their rights to receive benefits without realizing the consequences of what they say and do.
Regardless of what insureds do to support future benefits, approximately 50% of claims (in my experience alone) are still denied for what appears to be no reasonable legitimate reason. A key point in the appeals process is to accept the fact that insurance companies are very skilled in creating the illusion of credibility so that any outside court, regulator or other entity reading the file or Administrative Record would logically agree that the insurer’s denial decision was the appropriate decision to make.
Therefore, the skill of the insurer in creating documentation that “looks” credible must be challenged via the appeals process. Think about this for a moment. How does one discredit an illusion, or something that doesn’t exist, but appears credible? It’s not going to be easy, and there is no quick route to challenging deliberately misrepresented information that “looks good”, but in reality, is nothing more than an self-interest fable fabricated by an insurance company.
This fact alone makes it very difficult for insureds and claimants to know what to do when the sudden, and unexpected termination letter arrives in the mail. Hopefully, this EBook will clarify many of the questions you might have before making a choice – to appeal, not to appeal, retain an attorney, or try to appeal on your own.
Clearly, the decisions you make pertaining to your appeal will have lasting consequences for your financial future. My purpose in writing this document is only to provide you with valuable basic information so that you can be better informed to make choices that are right for you and your family and be able to ask an attorney the right questions.
Also, topics such as ERISA and applicable state laws are very complicated and it is not the intent of this article to provide you with all there is to know about ERISA or insurance laws in your state. The information given is only introductory in nature sufficient to help you understand the process of an appeal as it pertains to private disability claim denials.
ERISA or NOT ERISA
ERISA is an acronym that stands for the Employment Retirement Income Security Act of 1974, and it is an extremely complex set of federal laws regarding employer provided welfare plans including health, pension, disability and many other employer-provided benefits.
ERISA applies to virtually all private-sector employers that maintain welfare benefit plans for their employees, regardless of the size of the employer. This includes corporations, partnerships, limited liability companies, sole proprietorships and nonprofit organizations.
Employer provided benefits subject to ERISA include the following:
- Medical, surgical or hospital benefits;
- Dental benefits;
- Vision benefits;
- Prescription drug benefits;
- Health reimbursement arrangements (HRAs);
- Health flexible spending accounts (FSAs);
- Group life insurance benefits;
- Accidental death and dismemberment (AD&D) benefits;
- Death benefits (other than life insurance);
- Wellness programs (when medical care is provided);
- Employee assistance plans (EAPs) (when medical care is provided);
- Disability benefits, both short-term disability and long-term disability, if insured or funded other than as a payroll practice; and
- Disease-specific coverage (for example, cancer policies that provide medical benefits).
Although the original intent of ERISA in 1974 was to provide employee protection from discrimination in employer provided pension and welfare plans, over time federal and state courts have removed most ERISA employee protections to favor the insurance industry. I think it’s reasonable to say that most employer-provided Plans are subject to ERISA, but there are two exceptions.
ERISA only exempts two types of employers:
- Governmental employers are exempt from ERISA’s requirements. This includes Plans maintained by federal, state or local (a city, county or township) governments. Claimants who work for a governmental agency are generally exempt from ERISA.
- Church Plans are also exempt from ERISA. A church Plan is any employee benefit Plan established and maintained by a church or by “a convention or association of churches” that is exempt from tax under Section 501 of the Internal Revenue Code.
Therefore, it is very important to determine the jurisdiction of your Plan or policy early in the claims process because the jurisdiction of the Plan or policy not only determines how a claim will be managed, but also the direction and process of a denial appeal.
The responsibility for the interpretation and enforcement of ERISA rests with several governmental agencies including the Department of Labor, Department of the Treasury (Internal Revenue Service), and the Pension Benefit Guaranty Corporation.
Employees, or “participants” in the Employer’s Plan, are called “certificate holders” and are generally given a “Summary Plan Description” (SPD) and a “Certificate Booklet” at the time of enrollment. Claimants are NOT owners of the Plan but are “participants” or “beneficiaries” since the two parties to any group disability Plan are the employer and insurer.
The SPD describes all of the summary points of an ERISA Plan such as Effective Date of Coverage (EDOC), Waiting and/or Elimination Period (EP), Benefit Amount (BMB), and other highlights of the Plan. It is usually the first page in the “Certificate Booklet”; both the SPD and Certificate Booklet are ERISA required disclosures required of Employers at the time of enrollment. Not all Employers are aware of the required disclosure requirements and, therefore, it’s very important for all ERISA claimants to request Certificate Booklets on their own.
ERISA Plans are contracts of “adhesion” meaning participants are not given the opportunity to choose the provisions contained in the employer’s Plan. For this reason, at least in theory, courts are generally inclined to give deference (favor) to claimant issues. In my opinion, I do not believe ERISA judges actually do this although some attorneys might disagree with me.
End of Part I
