Private Insurance: Individual and Systems Advocacy

Private Insurance: Individual and Systems Advocacy
Steve Elliot, Esq., Minnesota Disability Law Center

Introduction to Private Health Care Advocacy
By Steve Elliot
Minnesota Disability Law Center
430 First Avenue North, Suite 300
Minneapolis, MN 55401-1780
621/332-1441
selliot@midmnlegal.org

Most Disability advocates have concentrated their efforts advocating for services for their clients from government-operated programs, such as Medicaid, Medicare and Special Education. These efforts, which have been quite successful, are justified because persons with disabilities have been primarily served by government programs. However, with the advent of Olmsted, Work Incentives and Third-Party Billing by Schools, persons with disabilities are increasingly looking for services from the private sector. Private health care providers are one of the primary private sources that persons with disabilities are turning to for services. So, Disability advocates must turn some of their efforts towards private health care advocacy to ensure that their clients are receiving necessary services.

Private health care programs are much different than the government programs advocates are accustomed to encountering. So, advocates must learn new advocacy principles and strategies in order to be effective in this new area.

I. Types of Private Health Plans

A. Indemnity or Fee-For-Service Plan - In this system, the health care is provided, and then the provider submits a bill to the payer. The health care provider receives most of their reimbursement after providing the health care. This is the opposite of what we usually mean by "managed care," and is the way most health care used to be provided. Controls are usually put on a fee-for-service system by requiring "prior authorization" of expensive or long-term services. States traditionally operated their Medicaid programs using fee-for-service models. This type of plan is usually provided by an insurance company, that takes the financial risk and responsibility for paying claims in exchange for the payment of premiums by the individual or group.

B. Managed Care Plans - These plans provide health care through a defined network of primary care physicians and hospitals. In this system, decisions about paying for care are generally made at the front end, before the services are received. These decisions are made by the payer (health plan or employer), who bears the financial risk. The health plan or employer reimburse the health care providers in advance for services that are expected to be delivered. Generally, managed care systems control health care costs by discouraging unnecessary hospitalization and overuse of specialists.

C. Preferred Provider Organization (PPO) - A health plan that negotiates discounted fees with hospitals, doctors and other health care providers, then encourages enrolled members to use the preferred network by offering lower co-payments and other incentives. Enrolled members may choose to go to out-of-network providers at a higher cost.

II. Purchasing and Funding of Health Plans

A. Individual Coverage - You may purchase an individual policy from a health maintenance organization (HMO), insurance company or nonprofit health services corporation (such as Blue Cross-Blue Shield). The health carrier decides whether to sell you a policy based upon an underwriting process. In this process, the health carrier will review your medical history and that of any dependents. In exchange for the premium you pay, the health carrier agrees to cover you and your dependents if you become sick or injured.

B. Group Coverage - You may be covered under a group policy. The most common group coverage is provided by employers to employees. Group coverage may be one of two types: fully insured or self-insured. Federal law says your coverage document must tell you if your plan is self-insured.

1. Fully-insured coverage - An employer purchases a "fully-insured" group policy from a health carrier to cover employees of the organization. The employer may pay all or part of an employees premium. The policy is called "fully insured" because the health carrier assumes the risk of providing coverage to the employees. In a fully-insured group plan, the health carrier issues a contract (typically called a master contract or policy) to the employer. In it, the health carrier agrees to provide coverage to the employees subject to various conditions. In turn, the employees and their dependents are covered under what are typically called certificates of coverage.

2. Self-Insured Coverage - Under self-funding, the employer still provides a set of health care benefits to its employees, but rather than paying a premium to an insurance company in exchange for the transfer of risk, the company opts to pay employee health care claims directly out of company assets. As a result, the risk of the employees health care claims stays with the employer, rather than being transferred to an insurance company. In many cases, the employer hires an insurance company or HMO to administer its health care benefit program. In this situation, the insurance company or HMO acts as a "third-party administrator" for the employers health care benefit plan, providing claims processing services but not accepting any risk.

III. Terms and Concepts

A. Premium - This is the amount you pay to obtain insurance coverage.

B. Health Maintenance Organization (HMO) - An organization which provides comprehensive health services or arranges for the provision of these services to enrollees on the basis of a fixed prepaid sum without regard to the frequency or extent of services furnished to any particular enrollee.

C. Capitation Agreements - Under this type of agreement, a health carrier pays a physician a flat (or "capitated") amount per patient per year. The physician is paid the same no matter how much treatment the patient receives. If the physician provides or authorizes less treatment than the capitated amount, the physician makes money on the patient. If, however, the physician performs or authorizes more treatment than the capitated amount, the physician loses money on the patient. A capitated arrangement creates financial incentives for physicians to limit treatment or referrals.

D. Risk Adjustment - A formula is devised to predict the use of health care services, based on diagnosis, age, and other factors for the population being served. "Risk adjustment" is the basis for the payment received as the capitation rate.

E. Fee-For-Service Structure - This means that a health carrier pays the physician his or her actual charges for a particular service.

F. Discounted Fee-For-Service Structure - Under this structure, the physician is paid for the actual services the physician provides, but at a discounted rate. The discounted rate is agreed to by the physician and health carrier. Under both the traditional and discounted fee-for-service structures, the more treatment a physician provides to a particular patient, the more the physician is paid.

G. Provider Networks - The doctors, clinics, hospitals, and other providers that a health plan has contracted with to care for its enrollees. Managed care organizations may employ their own staff physicians and operate their own clinics. Some plans contract with a limited network of independent provider s and clinics. Many health plans offer options that allow enrollees to select providers outside of the health plans preferred provider network. Usually a higher co-payment is charged.

H. Primary Care Provider - Some plans require you to select a primary care provider, who acts as a "gatekeeper." This provider makes referrals and decides what care is appropriate for you. The health carrier will not pay for a referral to a specialist unless it has been authorized by the gatekeeper.

I. Referral - A formal process that authorizes an enrollee to receive care from a specialist or hospital. Generally, the referral will come from the enrollees primary care physician before seeing a specialist.

J. Certificate of Coverage - The document that lists and describes what services will be provided under a person's health plan, including limits on coverage and exclusions from coverage.

K. Deductible - An amount that a covered person must pay before plan payments begin. For instance, the health plan may have a $500 deductible, in which case the enrollee pays the first $500 in medical bills before the plan pays anything.

L. Co-Payment - This is the amount you pay each time you receive treatment or pharmaceuticals. For instance, your health plan may require you to pay $10 each time you go to the doctor.

M. Annual Out-Of-Pocket Maximum - This is the maximum amount you will be required to pay each year in co-pays and deductibles.

N. Utilization Review - An organization which evaluates the necessity and appropriateness of medical treatments for purposes of determining medical necessity.

O. Pre-Existing Condition - Some policies contain pre-existing condition limitations. This means you do not have coverage for a pre-existing condition for a certain period of time. A health plan may not impose a pre-existing condition limitation if you have maintained continuous coverage. See Volume III, Issue 2 of The AT Advocate for information on laws applicable to pre-existing conditions.

P. Prior Authorization - Authorization must be received in advance before certain services can be provided or continued in a fee-for-service system. Criteria for prior authorization may vary for particular services.

Q. Third-Party Administrator - Most self-insured employers do not process claims internally. Rather, they typically have agreements with an outside vendor who processes claims for them. These vendors are called third-party administrators (or TPAs). The third-party administrator may be an HMO, insurance company or nonprofit health services corporation. (Many of these entities also act as "fully-insured" health carriers.)

R. Summary Plan Description (SPD) - The certificate of coverage for a self-insured plan, which lists the services covered by the plan and any applicable exclusions and limitations.

IV. The Employee Retirement Income Security Act (ERISA)

ERISA is a federal law passed in 1974 to regulate the administration of employee benefit plans. By 1974, employee benefits plans had become common place, and concerns about the integrity and reliability of some of these plans had arisen. Congress sought to protect plan participants and beneficiaries through "requiring the disclosure and reporting to participants and beneficiaries of financial and other information . . ., by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the Federal courts."

Under ERISA, the insurance policy is referred to as the "plan," a voluminous document that is rarely seen by beneficiaries. Typically, they only receive a benefits booklet, the SPD. If there is a discrepancy between the full plan and the SPD, the plan language should control. However, where the SPD appears to give benefits not allowed by the plan, beneficiaries have an excellent estoppel argument that the SPD language controls.

A. What Kind of Plans Are Covered Under ERISA?

1. ERISA applies, with specified exceptions, to any "employee benefit plan" established or maintained by employers "engaged in commerce or in any industry or activity affecting commerce," as well as to plans established by labor organizations "representing employees engaged in commerce or in any industry or activity affecting commerce . . . ." Almost any employer would meet this broad commerce test. 29 U.S.C. з 1003 (a)(1)&(2).

2. The definition of an employee benefit plan includes pension plans and health insurance plans. 29 U.S.C. з 1144.

3. A health benefit plan under ERISA is defined as a "plan, fund, or program" which is "established or maintained" by an "employer" or an "employee organization" (union, etc.) or both for the purpose of providing either directly or through the purchase of insurance, benefits such as medical, dental, disability, vacation, apprenticeship, etc. 29 U.S.C. з 1002(2)(A). Massachusetts v. Morash, 109 S. Ct. 1668, 1672 (1989).

4. The test for determining whether a plan exists is whether a reasonable person could ascertain from the surrounding circumstances: (1) intended benefits; (2) intended beneficiaries; (3) the source of financing; and (4) a procedure for obtaining benefits. Donovan v. Dillin, 688 F.2d 1367 (11th Cir., 1982) (en banc). See also Scott v. Gulf Oil Corp., 754 F.2d 1499 (9th Cir. 1985); Ed Miniat, Inc. v. Globe Life Insurance Group, Inc., 805 F.2d 732 (7th Cir. 1991); Garred v. General American Life Ins. Co., 723 F. Supp. 1325, 1327 (W.D. Ark. 1989).

B. ERISA Preemption

1. ERISA preempts all state laws "insofar as they may now or hereafter relate to any employee benefit plan . . . ." 29 U.S.C. з 1144(a).

2. Preempted State law includes not merely statutes, but also "all laws, decisions, rules, regulations or other state action having the effect of law . . . ." 29 U.S.C.з 1144(c)(1). See, e.g. Anschultz v. Connecticut General Life Insurance Co., 850 F.2d 1467 (1lth Cir. 1988).

3. Exception to Preemption

a. "[A]ny law of any state which regulates insurance" is excluded from preemption by ERISA. 29 U.S.C. з 1144(b)(2)(A).

b. Regulating the "business of insurance" is a matter which was expressly reserved to the states by the McCarran-Ferguson Act, 15 U.S.C. зз 1011-101.

4. A state insurance law saved from preemption is inapplicable to a self-funded employee benefit plan as such a plan may not be "deemed" covered under insurance laws. 29 U.S.C. з 1144(b)(2)(B).

5. ERISA is not to be construed to alter, amend, modify, invalidate, impair, or supersede any law of the United States or any rule or regulation issued under any such law. 29 U.S.C. з 1144(d).

C. ERISA Procedural Protections

1. Under ERISA, the administrator must furnish copies of plan documents and relevant claims information to a requesting participant within 30 days of receiving the request. 29 U.S.C. з 1132.

2. If a plan administrator fails or refuses to produce the requested documents within 30 days, a court may require the administrator to pay the requesting participant up to $100.00 per day until the administrator complies with the request. 29 U.S.C. з 1132(c).

3. Concealing exclusions or writing plans ambiguously violates ERISA, which requires that SPDs "be written in a manner calculated to be understood by the average plan participant, and shall be sufficiently accurate and comprehensive to reasonably apprise [claimants] of their rights and obligations under the plan." 29 U.S.C. з 1022(a)(1).

4. Notice and procedures when a claim has been denied.

a. ERISA requires that claimants be clearly informed of the denial, the specific basis for it and the procedure for a review that must be "full and fair." 29 U.S.C. з 1133.

b. Department of Labor regulations set out the minimum requirements for employee benefit plan procedures and the specifics of the denial notice. 29 C.F.R. з 256 D 5.

c. A plan administrator's failure to provide adequate notice may result in an extension of time for plan participants to assert their rights under ERISA. White v. Jacobs Engineering Group Long Term Disability Benefit, 896 F.2d 344 (9th Cir. 1989). In White, the court held that because the notice was inadequate, the plaintiff's claim was not barred by a 60-day time limitation for administratively appealing a denial.

D. Judicial Review.

1. Participants may seek court relief to:

a. Recover benefits denied under the plan;

b. Enforce rights under the plan;

c. Address a breech of fiduciary duty by the plan administrator;

d. Enjoin any practice of the plan administrator that violates the provisions of ERISA;

e. Remedy the plan administrator's failure or refusal to produce requested plan documents. 29 U.S.C. з 1132.

2. ERISA provides concurrent federal and state jurisdiction for a claim for benefits under the plan, as stated in 29 U.S.C. зз 1132(a)(1)(B) and (e)(1).

3. Claims for benefits combined with a claim for breach of fiduciary duty or violation of ERISAs procedural rules must be filed in federal court. Id.

4. You must serve a copy of the pleadings on the Secretary of Labor, if you are bringing a claim for more than denied benefits. 29 U.S.C. з 1132(h).

5. The Secretary of Labor has the authority to institute judicial proceedings to enforce the provisions of ERISA. 29 U.S.C. з 1132.

6. The Court may award prejudgment interest to compensate for the delay in payment, although courts typically have discretion over which interest rate to use and the method of calculation. See Hansen v. Continental Ins. Co., 940 F.2d 971 (5th Cir. 1991), Nelson v. EG&G Energy Measurement Group, Inc., 37 F.3d 1384 (9th Cir. 1994) and Quesinberry v. Life Ins. Co., 987 F.2d 1017 (4th Cir. 1993).

7. A court may award costs and reasonable attorney's fees in cases brought under ERISA. 29 U.S.C. з 1132(g)(1).

E. Scope of Judicial Review

1. If the plan administrator is explicitly given discretion to make coverage determinations, than the court will reverse the plan administrator's decision if it was arbitrary and capricious or not supported by substantial evidence. Firestone Tire and Rubber Co. V. Bruch, 489 U.S. 101 (1989).

2. If the plan administrator was not given discretion to make coverage determinations, than the court conducts a de novo review of the coverage decision. Id.

3. The Court's review is limited to the record created in the administrative proceedings conducted under the plan.

V. Government plans. Health insurance plans offered by government agencies to public employees are not covered by ERISA. Federal, state, and local employees have different statutory schemes regulating their plans.

A. Approximately 9 million federal employees are insured under plans that are issued by private carriers but regulated by the Federal Employee Health Benefits Act (FEHBA). 5 U.S.C. з 8901 to 8904 . The carriers contract with the U.S. Governments Office of Personnel Management (OPM).

B. State employees are insured under various plans created by state statute. These should be consulted when determining what procedure to follow in challenging benefit denials.

VI. State Law Protections for Persons Covered By Private Health Plans

Disability advocates have relied on the procedural due process protections of Medicaid to obtain the information necessary for effective advocacy and to force state Medicaid programs to follow prescribed procedures for approving and denying health care services. Similarly, advocates have relied on the substantive mandates of Medicaid to obtain necessary health care, including items of assistive technology, for their clients. ERISA provides some procedural due process requirements applicable to most health plans, but ERISA leaves some procedural gaps and does not create a uniform mandated benefit set. Disability advocates must use existing state laws to fill in these gaps or advocate for additional state laws to fill in the gaps. Advocates must rely upon or create state insurance laws, because of the scope of ERISA's preemption.

A. Obtaining Information and documentation

Disability advocates have relied on Medicaid's Notice Requirements and Freedom of Information Laws to obtain information about the health care services their clients need and the process for determining if the service is covered. Advocates must find or create similar state law provisions, so they can formulate the arguments that will convince private health care providers to cover the services needed by their clients.

Most states have created, or will create, Medicaid buy-in programs. Persons with disabilities, and their advocates, will need to determine whether to pay the premium to maintain or obtain Medicaid benefits. In order to make a decision about buying into Medicaid, persons with disabilities, and their advocates, must know what other available health plans cover. So it is important that there be state laws that mandate full and accurate disclosure of private health plan provisions.

1. Potential or Needed State Law Protections Related to Disclosure

a. All information, including marketing materials, plan summaries and notices, provided to enrollees and potential enrollees must be accurate and not deceptive. See, Minn. Stat. з 62d.09.

b. The plan summaries or evidences of coverage must contain a complete and accurate summary of all relevant plan provisions, including:

(1) the health care services and benefits the enrollee is entitled to receive under the plan;

(2) any exclusions or limitations on services or benefits;

(3) any deductibles or co-payments that the enrollee will be required to pay before receiving services;

(4) the enrollee's annual out-of-pocket maximum;

(5) any services that require prior authorization;

(6) how prior authorization is obtained;

(7) requirements for obtaining a referral to a specialist;

(8) procedures for obtaining coverage for services, including coverage for emergency and out-of-area services;

(9) a description of the health plans complaint procedures;

(10) a description of any external complaint procedures, such as the ability to file complaints with the state insurance commissioner. See, Minn. Stat. з 62D.07.

c. Health plans control access to services through prior authorization procedures, utilization review and limitations on referrals. The complexity or inaccessibility of these controls should not act as a barrier to necessary health care services. Therefore, health plans must be required to immediately provide information on prior authorization procedures, utilization review procedures and the methods for obtaining referrals to specialists after receiving a request for such information. See, Minn. Stat. з 62D.09.

d. Health plans have been particularly evasive when describing coverage for Assistive Technology, such as durable medical equipment and prosthetics and orthotics. This equipment is often essential to allowing persons with disabilities to maximize their independence. This equipment is also often too expensive for individuals to independently purchase. So, it is important for health plans to specifically disclose their durable medical equipment coverage. See, Minn. Stat. з 62Q.67. This section requires:

Subd. 2. Information to be disclosed. A health plan company that covers durable medical equipment shall disclose the following information:

(a) general descriptions of the coverage for durable medical equipment, level of coverage available, and criteria and procedures for any required prior authorizations; and

(b) the address and telephone number of a health plan representative whom an enrollee may contact to obtain specific information verbally, or upon request in writing, about prior authorization including criteria used in making coverage decisions and information on limitations or exclusions for durable medical equipment.

2. Potential or Needed State Law Protections Related to Notice of Action

a. Enrollees must be informed when the health care services that they have requested have been denied. The most effective way to provide notice to enrollees is in writing. Written notice provides the enrollee with documentation of the health plan's position. It is essential that health plans be required to provide written notice of benefit denials.

b. Persons with disabilities request health care services, including assistive technology, to meet emergent medical needs, to assist with obtaining or maintaining function or to help maximize independence. These individuals cannot wait indefinitely to find out whether a health plan is going to provide the requested health care service. Therefore, health plans must be required to provide notices of denials of benefits within a reasonable time of the request.

c. In order to understand and dispute a benefit denial, an enrollee must know why a health plan is refusing to cover a requested service. As such, a health plan's notice must contain the reasons for the benefit denial.

d. Most enrollees are not familiar with all of the terms of the health plan, nor are they versed in the state laws that govern private health plans. The health plans and state laws governing private health plans may contain important procedural protections. If unaware of these protections, enrollees may miss an opportunity to challenge, and have reversed, a benefit denial. Therefore, benefit denial notices provided by private health plans should contain information about an enrollee's complaint and appeal rights.

3. Essential Due Process Protections

a. Once a health plan has notified an enrollee that a benefit has been denied, the enrollee must have an opportunity to convince the health plan that their coverage determination was wrong. A health plan may reverse their denial given the opportunity and more information. This type of internal appeal is cheaper and easier than instituting a court action. State laws should require private health plans to have internal appeal procedures. These appeal procedures should:

(1) allow appeal request to be made in writing or by phone;

(2) require the health plan to provide written verification of receipt of the appeal request;

(3) give the enrollee an opportunity to appear in person at a hearing;

(4) give the enrollee and opportunity to present evidence;

(5) require the health plan to issued a written decision, detailing the reasons for the appeal decision;

(6) require the written decision to be issued within a fixed time of the appeal request;

(7) require the appeal decision maker to be different from the original decision maker;

(8) require the health plan to notify the enrollee of further appeal rights, if the denial is upheld on appeal.

See, Minn. Stat. з 62Q.69 and Minn. Stat. з 62Q.70.

b. Generally, a state agency, such as the state Insurance Commission, is responsible for overseeing the practices of private health plans and ensuring compliance with state laws.

(1) The state regulatory agency generally evaluates private health plans prior to their offering to determine whether they comply with state laws and regulations. The state agency can refuse to certify plans which it determines do not comply with state laws. See, Minn. Stat. з 62D.04.

(2) The state regulatory agency should also have an appeal or complaint procedure to review decisions and practices of private health plans, including decisions to deny benefits. A state agency appeal is a relatively simple and inexpensive means for enrollees to dispute, and possibly overturn, a benefit denial. See, Minn. Stat. з 62D.11.

c. External Review - Some states have created independent external review procedures for enrollees to access to dispute claim denials. Advocates should consider advocating for an external review process in their state to provide an independent, inexpensive and expedited review of benefit denials. External review systems should:

(1) Be available to enrollees to review any adverse decision of the private health plan;

(2) be inexpensive for an enrollee to access;

(3) require the health plan to pay for the costs of the review;

(4) allow the parties to present evidence and arguments;

(5) ensure that the review of medical necessity determinations is done by a health care professional with expertise related to the disputed service;

(6) provide that reviews will be completed within a fixed time from the request for the external review;

(7) provide that a written decision with findings will be issued;

(8) make the external review decision binding on the health plan. See, Minn. Stat. з 62Q.73.

D. Substantive Protections Under State Law

Most states have not created a substantive benefit set that private health plans must offer. So, unlike Medicaid, persons with disabilities, and their advocates, do not have a set of required benefits they can rely on to establish coverage for the health care service they need. However, it may be helpful to look at areas of current, and potential, substantive regulation.

1. Mandatory Minimum Benefit Set - Some states require private health plans licensed by the state to offer and provide certain health care services, such as emergency care, inpatient hospital and physician care, outpatient health services and preventive health services. See, Minn. Stat. з 62E.06. Establishing a mandatory minimum benefit set in law is very difficult, because most state legislatures are hesitant to impose mandates on industries, preferring to allow the free market to set the limits.

2. Standard Durable Medical Equipment Definition - Some states have attempted to create a standard definition for durable medical equipment that private health plans must use. This ensures that private health plans will not restrict access to durable medical equipment by utilizing a narrow definition of durable medical equipment. See, Kansas

3. Annual Out-of-Pocket Limits - Some states limit how much an enrollee must pay in co-payments and deductibles to access services. Persons with disabilities often use more health care than other enrollees. And, so often pay out more in co-payments and deductibles than the average enrollee. So, it is important for persons with disabilities that there be annual out-of-pocket limits. It should be noted that enrollees are often responsible for keeping track of their own out-of-pocket expenditures. Minn. Stat. з 62D.02, Subd. 8.

4. Out-of-state Plans - Private health plans are generally only required to comply with the laws of the state in which issued. However, state laws do require that out-of-state plans that serve more than a de minim us, number of enrollees must also comply with that state's laws. See, Minn. Stat. з 62A.01, Subd. 3.

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