Lawyers.com Blog

MARK SCHERZER TESTIFIES IN SUPPORT OF REGULATING HEALTH INSURANCE PREMIUM INCREASES

nospam@example.com (Mark P. Scherzer) — Thu, 11 Jun 2009 15:26:59 -0400

Mark Scherzer testified on June 8, 2009, at a hearing held by the New York State Assembly Insurance Committee in Albany, in support of a bill that would reinstate the ability of the State Insurance Department to review and approve certain health insurance premium rate increases prior to their taking effect. Representing New Yorkers for Accessible Health Coverage, Mark pointed out that if insurers overcharge, individuals and small businesses might be forced to drop coverage, and they have no effective remedy at their disposal to contest the overcharges. Insurers, on the other hand, can always sue the Insurance Department if an appropriate rate increase is denied. The risks to consumers are therefore higher from lack of regulation than are the risks to insurers from having to live with regulation. Consumers, Mark said, “need the protective power of the state to give them a fighting chance when facing huge and powerful institutions like insurers.”

In a report issued on the day of the hearings, the Insurance Department identified tens of millions of dollars in overcharges by health plans under the current “file and use” system. Insurers have failed to police themselves effectively; they do not voluntarily correct the majority of those overcharges. By the time the State is able to act, it is often too late for the people who have gone without coverage. They may already have been damaged by foregoing necessary medical care. The press release announcing the report, including a quote from Mark, may be obtained at http://www.ins.state.ny.us/press/2009/p0906081.htm

MARK SCHERZER CO-AUTHORS REPORT ON HEALTH CARE COVERAGE FOR NEW YORKERS WHO HAVE LOST THEIR JOBS

nospam@example.com (Mark P. Scherzer) — Tue, 17 Mar 2009 11:24:46 -0400

Twenty five thousand workers are losing their jobs every week in New York State. With unemployment often comes the loss of health coverage and other employee benefits. To help New Yorkers understand their rights to maintain health coverage after they have been laid off or fired, the United Hospital Fund has published a free guide, "Hard Times and Health Insurance: Staying Covered When You Lose Your Job." The booklet, available as a free download on the United Hospital Fund's website, was co-authored by Mark Scherzer and Peter Newell, the co-director of United Hospital Fund's Health Insurance Project.

The booklet gives a detailed description of your rights to various types of coverage when regular coverage through employment ends: a special enrollment period in a spouse's or parent's health coverage, COBRA coverage in your former employer's plan, continuation coverage in New York state insurance policies not subject to COBRA, conversion policies and the purchase of individual coverage. It tells you how to take advantage of the new federal subsidies under the terms of the American Recovery and Reinvestment Act (ARRA) that will pay 65% of the COBRA premiums for up to 9 months for people who involuntarily lost their jobs after September 1, 2008. It also lists other sources of support for COBRA premiums which were passed as part of the federal stimulus package or are provided by the State.

Individuals who are laid off, who are losing their coverage through domestic partners or family members, or who work for companies that go bankrupt will all find useful information in this booklet. Financial support for publication of the guide was provided by the New York State Health Foundation, whose mission is to expand health insurance coverage, increase access to high-quality health care services, and improve public and community health.

MARK SCHERZER CO-AUTHORS REPORT EXAMINING NEW YORK HEALTH INSURANCE COVERAGE FOR IMMIGRANTS

nospam@example.com (Mark P. Scherzer) — Thu, 26 Feb 2009 15:38:19 -0500

This week, New Yorkers for Accessible Health Coverage ("NYFAHC") and the New York Immigration Coalition (the "NYIC") jointly published an issue brief co-authored by Mark Scherzer and Jenny Rejeske, examining health coverage for immigrants in New York.

The work was funded by a grant from the New York State Health Foundation, which contemplates the publication of several issue briefs. Over a third of immigrants are uninsured, and immigrants -- including those with serious illnesses and disabilities -- account for one quarter of all the uninsured in New York. The issue briefs will examine various existing barriers to coverage and opportunities to lower those barriers and increase immigrant coverage.

This first brief analyzes the major proposals for expanding health coverage submitted during the Partnership for Coverage process initiated by the Governor in 2007, and those which are currently being modeled by the Urban Institute for the State. It concludes that while none of the proposals would be likely to diminish immigrant coverage, none of them adequately addresses the barriers which uniquely affect immigrants. If special provisions are not included in the design of any coverage expansion plan, immigrants are likely to remain disproportionately uninsured, and the goal of achieving truly universal coverage will remain out of reach.

A full copy of the report is available at the Center for the Independence of the Disabled in New York ("CIDNY") website. Click here to go directly to the report (requires Adobe Acrobat).

LETTER SUBMITTED TO THE NEW YORK TIMES BY MARK SCHERZER AS LEGISLATIVE COUNSEL TO NEW YORKERS FOR ACCESSIBLE HEALTH CARE

nospam@example.com (Mark P. Scherzer) — Fri, 06 Feb 2009 19:49:55 -0500

The following letter was submitted to the New York Times on January 20, 2009, in response to an article that appeared on January 19, 2009, "Impact of Paterson's Health Care Plan May be Limited":

To the Editor:

While the positive impacts of Governor Paterson’s plan to extend group insurance coverage to employees’ children up to age 29 may be limited (news article, Jan. 19), the potential negative impact, if the proposal is not modified, is considerable.

Since 1992, New York has been one of very few states with community rating. Small employers are not charged more to insure older workers, women, or people with health problems. Governor Paterson’s proposal would create a new class of young adults offered reduced premiums based on age, re-introducing rating by risk. Equity will demand that age distinctions be generalized throughout the market; community rating will unravel and many businesses and their employees will find it harder to afford insurance.

Even small incremental measures that increase coverage deserve support. But there is no reason to dismantle consumer protections like community rating in the process.

Mark Scherzer

Legislative Counsel

New Yorkers for Accessible Health Coverage

New Yorkers for Accessible Health Coverage is a coalition of over 50 voluntary health organizations representing the seriously and chronically ill, the disabled and elderly.

NEW YORK STATE HEALTH FOUNDATION CONFERENCE (NOVEMBER 18, 2008)

nospam@example.com (Mark P. Scherzer) — Wed, 19 Nov 2008 15:26:14 -0500

Presentation by Mark Scherzer

Mark Scherzer addressed a large crowd of state policy-makers, healthcare advocates and insurance industry representatives at the NYSHealth Foundation Conference, “Reforming New York’s Individual Health Insurance Market,” in midtown Manhattan on November 17, 2008. Mark was a member of a panel of experts commenting on proposals to reduce premiums and restore a viable, affordable “direct pay” market in New York State.

The crisis caused by high premiums and shrinking enrollment, Mark noted, has its roots in the state’s failure over the last 8 years to increase funding for the reinsurance pool which is designed to keep premiums low in the individual health insurance market. The increases are necessary to match medical inflation as well as to mitigate the effects of New York’s very progressive rules prohibiting discrimination against purchasers of insurance based on their age, sex or health. These rules have allowed many people with high healthcare needs to have access to policies they could not purchase in other states.

Mark noted the parallels of the individual health insurance market crisis with the current banking system meltdown. As a matter of public policy, and for very good reasons, New York mandated that healthcare insurers offer medical coverage to people in “subprime” health, without discrimination, just as the federal government has encouraged the banking industry to offer mortgages to people with subprime credit. In both cases, however, policy-makers erroneously assumed that the marketplace could be relied upon to distribute the increased risks that had been introduced. Subsequent events have demonstrated that private companies did not develop adequate mechanisms to spread the risk. Policymakers must recognize that the risk is not one that private industry can bear alone, and that the increased costs of this additional risk ought to be taken on by society, as a whole.

The challenge, said Mark, is to ensure that the solution be crafted to benefit Main Street as well as the healthcare insurance industry. A solution that permits insurers to offer coverage to healthy people at cheap prices is not good enough. The test of success will be whether the very sick, elderly, and disabled can get and keep affordable medical coverage that meets their needs. Some of the measures currently proposed, such as a merger of the individual health insurance market with the market for small employer groups, may offer enough temporary rate relief to keep the individual market afloat, but could endanger small business coverage in the long run. The only sustainable system of comprehensive healthcare coverage is one which, through truly broad-based financing, effectively spreads the cost of medical care for elderly, disabled and seriously ill persons across all state residents according to their ability to pay.

A video of the NYSHealth Foundation conference will be available at http://www.nyshealthfoundation.org/section/november_conference

METLIFE v. GLENN: THE SUPREME COURT IMPROVES THE STANDARDS FOR DECIDING DISABILITY CLAIMS UNDER EMPLOYER-SPONSORED PLANS (ERISA)

nospam@example.com (Mark P. Scherzer) — Tue, 05 Aug 2008 20:04:07 -0400

The Supreme Court’s recent decision in Metropolitan Life Insurance Company v. Glenn, 128 S. Ct. 2343 (Jun. 19, 2008) is likely to have beneficial effects on judicial review of ERISA-governed disability and other welfare benefit claims, particularly in the Second Circuit, which includes New York. The Court’s analysis allows district courts more freedom to consider the impact of an insurer’s bias and financial self-interest (conflict of interest) in denying claims. Moreover, since the presence of such a conflict can justify discovery and admission of evidence outside the so-called “administrative record,” courts should be more willing to authorize discovery where signs of bias and self-interest are present, even if no “smoking gun” is apparent. Finally – and with specific reference to disability claims – the Supreme Court has made clear that insurers and claim administrators should consider Social Security disability determinations. If a claimant has been approved for Social Security disability, it may be considered arbitrary and capricious for a private insurer to ignore that fact in its claim determination.

The New Standard of Review

A significant hurdle to claimants seeking benefits under employer-sponsored plans has long been the “arbitrary and capricious” standard of review. The Supreme Court approved the application of this standard of review in Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101 (1989), holding that if the documents which establish a benefit plan grant the claim administrator “discretion” to interpret plan terms or make benefit determinations, those interpretations or decisions would not be overturned unless the decision was so wrong or unreasonable as to be arbitrary and capricious. Under this more deferential review, it is not enough for a claimant to demonstrate that the decision was against the weight of the evidence.

While recognizing the administrators’ discretion, the Supreme Court also admonished in Firestone that “if a benefit plan gives discretion to an administrator or fiduciary who is operating under a conflict of interest, that conflict must be weighed as a ‘facto[r] in determining whether there is an abuse of discretion.’” 489 U.S. at 115. Many federal circuit courts of appeal, guided by this admonition, adopted a “sliding scale” approach to conflict-of-interest analysis. The Second Circuit, however, established an all-or-nothing test in Sullivan v. LTV Aerospace & Defense Company, 82 F.3d 1251 (2^nd Cir. 1996). Under this test, a district court was required to adhere to the arbitrary and capricious standard of review in cases alleging conflict of interest, unless the claimant could show that the conflict actually affected the choice of a reasonable interpretation. In other words, it was not enough to simply demonstrate a structural conflict of interest, i.e., that the claim administrator was also the insurer (financially responsible party) for the plan, but instead a claimant must carry the burden of demonstrating that the administrator was “in fact influenced” by the conflict of interest. Only then would the court reduce its deference to the administrator and make its own determination of whether the benefits should be awarded (known as “de novo” review).

Thus, the Second Circuit essentially required “smoking gun” evidence of a conflict of interest. Given the improbability that a claim manager would record such a “smoking gun” in a claim file, cases satisfying the Sullivan standard have been rare. We are aware of only one such case, Schwartz v. Oxford Health Plans, 175 F. Supp. 2d 581 (S.D.N.Y., 2001), in which Oxford’s decision to change to a less generous reimbursement formula for “usual, customary and reasonable” charges was found tainted by a conflict of interest, based on the Oxford’s past coverage in full of insured’s medical care, its decision to make the change in the same year it began to experience losses, its failed efforts to induce the insured to switch to an in-network provider, and the relative weakness of Oxford’s reasoning in support of the change.

Glenn effectively overrules Sullivan’s “smoking gun” test, instead directing district courts to consider the effect of bias and financial self-interest as a factor, even when the effect of that conflict is not blatant. The Court determined that “for ERISA purposes[,] a conflict exists” when an insurer “both evaluates claims for benefits and pays benefits claims.” 138 S. Ct. at 2348-50. That conflict must always be considered as a “factor” to a greater or lesser degree depending on a variety of other factors:

[C]onflicts are but one factor among many that a reviewing judge must take into account. Benefits decisions arise in too many contexts, concern too many circumstances, and can relate in too many different ways to conflicts – which themselves vary in kind and in degree of seriousness – for us to come up with a one-size-fits-all procedural system that is likely to promote fair and accurate review….
In such instances, any one factor will act as a tiebreaker when the other factors are closely balanced, the degree of closeness necessary depending upon the tiebreaking factor's inherent or case-specific importance. [A] conflict … should prove more important (perhaps of great importance) where circumstances suggest a higher likelihood that it affected the benefits decision, including, but not limited to, cases where an insurance company administrator has a history of biased claims administration…. It should prove less important (perhaps to the vanishing point) where the administrator has taken active steps to reduce potential bias and to promote accuracy, for example, by walling off claims administrators from those interested in firm finances, or by imposing management checks that penalize inaccurate decisionmaking irrespective of whom the inaccuracy benefits.

128 S. Ct. at 2351. Although we are unaware of a district court in the Second Circuit that has yet addressed the effect of Glenn vis a vis Sullivan’s all-or-nothing test, it seems clear that in insurer-administered benefit plans, district courts will have freer rein to consider the insurer’s conflict of interest as a “factor,” even if there is no “smoking gun” evidence of a direct link between the conflict and the particular benefit determination.

New Opportunities to Obtain and Introduce Evidence

The Court’s reasoning in Glenn should also make district courts in the Second Circuit more open to admitting evidence outside the “administrative record.” The general rule is that a district court’s review – whether under the arbitrary and capricious standard or the de novo standard – is limited to the administrative record, i.e., the claim file as organized and maintained by the claim administrator. Miller v. United Welfare Fund, 72 F.3d 1066, 1071 (2^nd Cir. 1995) (district court erred when, on arbitrary and capricious standard of review, it conducted a bench trial in which evidence outside the administrative record, including the testimony of claimant’s treating cardiologist and an affidavit from a nurse consultant, was considered); DeFelice v. Am. Int'l Life Assurance Co., 112 F.3d 61, 66-67 (2^nd Cir. 1997) (In reviewing an ERISA eligibility determination de novo, the district court is limited to a review of the evidence in the administrative record absent good cause to consider additional evidence).

The Second Circuit, in DeFelice, held that where there is “[a] demonstrated conflict of interest in the administrative reviewing body,” this may constitute “good cause” for the admission of evidence outside the administrative record. 112 F.3d at 66-67 (2^nd Cir. 1997). The court also observed that for this purpose, the conflict need not rise to the level of causing “actual prejudice,” as required by Sullivan to alter the standard of review. Nonetheless, the Second Circuit emphasized in Locher v. UNUM Life Ins. Co. of Am., 389 F.3d 288 (2^nd Cir. 2004), that a bare structural conflict (i.e., that a claim administrator occupies the dual role of claim decision-maker and claim payer) is not enough, on its own, to constitute “good cause.” Something more has been required, such as a “procedural irregularity or deficiency,” including “an insurer’s lack of ‘established criteria for determining an appeal’; an insurer’s ‘practice of destroying or discarding all records within minutes after hearing an appeal’; an insurer’s ‘failure to maintain written procedures’ for claim review; and an insurer’s failure to state its reason for denying a claim in its notices to a claimant.” Laub v. Aetna Life Ins. Co., 549 F. Supp. 2d 571 (S.D.N.Y., 2008). Thus, “good cause,” for purposes of admitting evidence beyond the administrative record, lies somewhere on the continuum between a structural conflict and a conflict manifested by evidence of direct consideration of financial or other self-interested factors. This test might be called “structural conflict plus” or, alternatively, “actual conflict lite.”

Glenn’s holding – that a structural conflict of interest is, in and of itself, a factor that must be considered in reviewing a claim determination – does not directly overrule the holdings of DeFelice and Locher. However, by placing increased weight on the structural conflict itself, Glenn should reduce the amount of additional ”good cause” a claimant needs to introduce in order to get extrinsic evidence admitted. Glenn should also provide additional momentum to the prevailing trend in the Second Circuit of recognizing that discovery is appropriate, and that a claimant seeking discovery should not be required to first overcome onerous hurdles:

However, at the discovery stage, the plaintiff need not “make a full good cause showing, but must show ‘a reasonable chance that the requested discovery will satisfy the good cause requirement.’” In Anderson v. Sotheby's Inc. Severance Plan, Magistrate Judge Douglas F. Eaton explained this less-than-good-cause requirement, stating, “If a plaintiff were forced to make a full good cause showing just to obtain discovery, then he would be faced with a vicious circle: To obtain discovery, he would need to make a showing, that in many cases, could be satisfied only with the help of discovery.” The good cause standard required to obtain evidence beyond the administrative record is therefore less stringent than when requesting that the court to consider such evidence in its final determination.

Trussel v. CIGNA Life Ins. Co., 552 F. Supp. 2d 387 (S.D.N.Y. 2008). While entitlement to discovery certainly cannot be assumed as a fait accompli by plaintiffs’ attorneys, prompt, non-abusive discovery demands will likely be upheld when a structural conflict is present, non-frivolous questions or concerns about the integrity of the decision-making process are raised, and a reasonable rationale has been articulated for the information sought. A non-exhaustive list of permissible discovery inquiries has been summarized by one court, as follows::

(1) the criteria of review by the administrator; (2) the composition of the panel and if a conflict of interest exists; (3) the medical records reviewed in determining eligibility; (4) the relationship between the plan administrator and employer; (5) the person most knowledgeable of the termination of plaintiff's benefits; (6) the factual basis for the defendant's decision regarding benefits; (7) any procedural irregularities; (8) the proper standard of review; (9) the competency of the fiduciary; (10) whether or not the fiduciary acted unreasonably; (11) the change in medical condition as a basis for denial; (12) the role of the insurer in the loss of benefits; (13) the completeness of the administrative record; (14) the competent and complete evaluation of medical records; (15) the compensation plans of the decision makers; (16) the identity of the plan's trustees; (17) who has ultimate authority to decide claim disputes under the plan; (18) consultation with medical sources; (19) the relationship between the administrator and the medical advisor; (20) inspection of the claim file; (21) the role of the fiduciary; and (22) the physician's report and testimony.

Reittinger v. Verizon Communications, 2006 U.S. Dist. LEXIS 83293, at *11, n. 2 (N.D.N.Y., Nov. 15, 2006). Discovery should be sought early and not raised as an afterthought, as courts seem disinclined to permit discovery once a summary judgment motion (or a so-called “motion for judgment on the administrative record”) has been submitted. See, e.g., Wagner v. First Unum Life Ins. Co., 100 Fed. Appx. 862 (2^nd Cir., Jun. 14, 2004) (unpublished opinion) (affirming district court’s refusal to permit discovery after granting summary judgment to the claim administrator). Nor is it likely that courts will view Glenn as authorizing open-ended discovery. Florczyk v. Metropolitan Life Ins. Co., 2008 U.S. Dist. LEXIS 54651 (N.D.N.Y., Jul. 11, 2008) (considering the interim Glenn decision, discovery denied where, “because of the conflict, the Court [had previously] permitted limited discovery that uncovered nothing probative”: “Further discovery is not warranted, and to permit the ‘fishing expedition’ proposed by Plaintiff would entirely frustrate ERISA’s efforts to avoid complex review proceedings”).

Thus, without necessarily opening the door to the sorts of broad ranging discovery that characterizes other civil litigation, Glenn does, through recognizing a broader view of how a conflict of interest may affect decisions, provides a basis for ensuring that relevant evidence can be found and introduced.

Taking Social Security Disability Decisions into Account

The Supreme Court’s handling of the plaintiff’s Social Security disability determination in Glenn should boost claimants’ efforts to have these determinations given consideration and weight. Prior to Glenn, a majority of courts held that such a determination cannot be summarily dismissed, but must be reviewed and accounted for in some way. E.g., Edgerton v. CNA Ins. Co., 215 F. Supp. 2d 541, 549-50 (E.D. Pa. 2002) (“Although an SSA decision may not be dispositive in determining whether an ERISA administrator’s decision is arbitrary and capricious, it is a factor that should be considered”). However, some courts have given the impression that such determinations are wholly irrelevant, or that the failure to consider such determinations is harmless. E.g., Suarato v. Bldg. Servs. 32bj Pension Fund, 554 F. Supp. 2d 399 (S.D.N.Y., 2008). In Glenn, the Supreme Court confirmed that ignoring a Social Security disability determination may not only constitute arbitrary and capricious decision-making, but evidence of a conflict of interest, as well:

[T]he fact that MetLife had encouraged Glenn to argue to the Social Security Administration that she could do no work, received the bulk of the benefits of her success in doing so (the remainder going to the lawyers it recommended), and then ignored the agency’s finding in concluding that Glenn could in fact do sedentary work … was not only an important factor in its own right (because it suggested procedural unreasonableness), but also would have justified the court in giving more weight to the conflict (because MetLife’s seemingly inconsistent positions were both financially advantageous).

128 S. Ct. at 2352. Although Chief Judge Roberts did not join the 5-judge majority in the conclusion that the recited facts were evidence of a conflict of interest, he agreed in his concurring opinion that “These facts … prove that MetLife abused its discretion in failing to consider relevant, expert evidence on the question of Glenn’s disability status.”

Conclusion

Because the Supreme Court’s holding in Glenn rejects a “smoking gun” approach to demonstrating a conflict of interest, claimants in the Second Circuit should have an easier time in challenging the decisions of insurers who both fund and determine claims. This relaxed standard should also make it easier to obtain discovery and admit evidence regarding such conflicts. Finally, as the result of this decision, claimants who have been awarded Social Security disability benefits, often with the help of their disability insurers, should have that fact considered in support of their claims.

Attorneys Mark Scherzer and A. Christopher Wieber Contribute to "Private Insurance" Chapter, AIDS and the Law (4th Ed.)

nospam@example.com (Mark P. Scherzer) — Tue, 29 Jul 2008 18:29:30 -0400

Attorneys Mark Scherzer and A. Christopher Wieber are contributing co-authors to the "Private Insurance" Chapter of AIDS and the Law (4th Ed., Aspen Publishers), along with Editor David W. Webber, Esq. http://www.aidsandthelaw.com/ The chapter addresses access to health, life and disability insurance coverage, HIV testing, making disability claims under private insurance policies and employer-sponsored group plans, portability of insurance coverage, COBRA, and a variety of other topics of concern to persons with HIV and AIDS.

HIP CONVERSION TESTIMONY OF NEW YORKERS FOR ACCESSIBLE HEALTH COVERAGE (GIVEN BY MARK SCHERZER, LEGISLATIVE COUNSEL)

nospam@example.com (Mark P. Scherzer) — Thu, 13 Mar 2008 13:07:15 -0400

JANUARY 29, 2008: Testimony Delivered on January 29, 2008 at the New York State Insurance Department Hearing on Proposed For-Proft Conversion of HIP/GHI

Thank you for the opportunity to testify on the application of HIP/GHI, merged entities under the umbrella name Emblem Health, to convert to for-profit status. New Yorkers for Accessible Health Coverage (“NYFAHC”), a coalition of over 50 voluntary health and allied organizations representing the interests of the seriously and chronically ill, disabled and elderly in the insurance system, opposes granting the current application. While we will set forth at length the reasons for our opposition, we recognize that the Department has itself invested considerable time in making the application one it can approve. For that reason, we will also discuss in this testimony some essential consumer protection mechanisms should the application be approved.

One of the statutory criteria you must consider in judging this application is whether it serves the interest of the public in delivery of health care benefits and services. NYFAHC believes that interest is best protected when there exists a strong non-profit sector providing coverage for such services, and when the public has faith that resources committed to nonprofit health care institutions will remain committed to the institution’s nonprofit mission. Therefore, the Superintendent should only approve the conversion of non-profit organizations to for-profit corporations as a last resort, only when the non-profit is no longer able to carry out its mission.

Another statutory criterion you must consider is whether granting the conversion application will lead to continued or increased access to health coverage. We believe that the Department should apply this criterion from the perspective of the Governor’s initiative, recently begun, to expand coverage health coverage universally to all New Yorkers. It should only authorize those changes in the structure of our health insurance market which contribute to increasing access to more affordable health coverage.

The burden should be on HIP and GHI to show that conversion would meet these two tests. In this case, we do not believe that either test has been met.

I. The conversion has not been shown to be necessary

The reasons for conversion posited by HIP, a company enjoying considerable financial health, and GHI, a company still building its reserves but nevertheless currently able to operate on a financially sound basis, seem to be based on entrepreneurial hopes rather than a demonstration that conversion is the only way they can fulfill their non-profit missions. The conversion plan is stated, truthfully, in tentative and speculative terms, expressing fear that the companies could be relegated to second tier status, that they might be unable to devote sufficient resources to development if they cannot get financing from equity markets, and similar possibilities.

Taking a page from Empire Blue Cross’s book, the applicants have projected the same benefits from conversion that Empire Blue Cross predicted five years ago. Those promised benefits for Empire and the State (that Empire would raise money for its competitive improvements through stock offerings, and that it would remain a locally controlled, responsive insurer) were never realized. Empire neither relied on public stock offerings to raise capital nor did it remain a local company, being acquired by a national for profit Blue Cross behemoth.

Emblem Health would in some ways be an easier acquisition target than Empire. It is smaller, and no barriers of the sort associated with retention of the Blue Cross trademark restrict the universe of potential buyers. New York should learn from experience, and experience tells us that conversion may simply facilitate a more concentrated insurance market dominated by an oligopoly of national commercial insurers.

HIP/GHI have suggested some alternative rationales supporting the conversion. They say that conversion to an equity company would facilitate re-entry into the New Jersey market, a necessary step for a credible regional insurer, because they can issue stock when acquiring a New Jersey operation instead of coming up with cash. It is hard to imagine, however, that they would be unable to make such acquisitions only in that way. HIP has been on a buying spree in recent years, acquiring other health plans, including for-profit plans, on Long Island and in New Jersey and Massachusetts. It has over $400 million in excess reserves and could surely use the stock of some of its more far flung existing operations, including its for-profit subsidiaries in other states, as a means of payment right now.

HIP/GHI have also asserted that conversion would enable them to enter into closely associated lines of business, such as life insurance and sale of health savings accounts, which are off limits to them now as Article 43 corporations. While the statement is technically true, it requires a great leap of faith to assume that enabling such diversification will somehow encourage or facilitate broader offering of affordable health coverage. HIP’s previous adventures in other states, including New Jersey and Florida, do not suggest that diversion from core mission necessarily helps the financial picture.

In short, HIP/GHI have suggested some advantages that might be gained from the conversion, but have shown neither a compelling need to convert nor that the speculated advantages outweigh the negative effects of further eroding the nonprofit health sector, in fact depriving downstate New York of any significant nonprofit health insurers at all.

II. The conversion will not promote access to affordable coverage.
For the past four months, the Department has been one of lead agencies in the Governor’s Partnership 4 Coverage process. In hearings around the state, broadly representative consumer and provider groups have repeatedly testified about the ways in which commercial insurers stand as obstacles to decent coverage or access to care. Many pointed the finger at currently low medical loss ratios as contributing to a lack of affordable of coverage, and thus as an obstacle to expanding coverage.

Unfortunately, it appears highly likely that premium increases will result from the proposed conversion. HIP/GHI state in their conversion plan that one of the key advantages to conversion will be that they will no longer be subject to a 15% cap on administrative expenses, allowing them to invest resources in more aggressive medical management. Being free to decrease the percentage of premium revenue spent on benefits and increase administrative expenses in fact frees revenue for a wide variety of purposes, including dividends to investors and high executive salaries. What it does not do is contribute to maintaining lower premiums. Intuitively, higher premiums appear likely, especially in those markets, such as among New York City municipal employees, where GHI and HIP have been each others’ chief competitors.

Our prediction is, of course, speculative. There is insufficient information in the current conversion plan for the Department to assess the likely effects on premiums for consumers. We asked GHI whether its consulting actuaries had studied the likely effects, and were advised that they “do not have a comparative premium study comparing products and premiums by line-of-business for periods before and after conversion.” While they noted that such a study would not be able to be publicized, under SEC regulations, the same restrictions would not seem to prevent the Department from examining and evaluating such a study.

Before deciding whether to approve this application, the state should require an actuarial study, broken down by line of business, of likely effects on premiums. If that study finds that premiums are likely to increase as a result of the conversion, the application should certainly be denied, as it will undercut the state's effort in the coming year to make coverage universally accessible at an affordable price.\1\ Any one-shot infusion of conversion dollars into state coffers will not offset the additional long term costs the state will have to bear when it tries to bring coverage to all New Yorkers if it changes the structure of the market in a way that makes coverage more expensive.

III. If conversion is authorized, consumer protections must be strengthened.

The correspondence between the Department and Emblem Health posted on the website demonstrates that the Department has raised serious and important questions regarding the effect on consumers of the merger of the two companies which is being realized simultaneously with and as part of the proposed conversion. In at least four respects, vulnerable consumers are at risk:

A. Differences in clinical care standards: GHI and HIP, while determining that they have few differences in utilization review and other clinical standards, have identified about 10% of standards which differ to some degree. They have offered that consumers affected by a merging of clinical care standards should be able to continue current courses of treatment for some limited time. However, consumers who have been maintained on therapies that are working for them, approved by their insurer, whether those be particular drugs on a formulary or other therapies recommended by their doctors, should not be forced to switch therapy simply because the insurer has assigned its contract to another entity. While Emblem Health should be free to impose its unitary medical review criteria on new claims for treatment, those who have set their treatment course under earlier medical review criteria of one of the entities should be able to maintain that course of treatment in perpetuity unless the new insurer can show that the treatment has become contraindicated for their condition.

B. Network changes: While the merged companies apparently plan to offer all current providers in each entity’s networks the opportunity to participate in Emblem Health’s networks, the possibility exists that the new entity will not offer sufficiently attractive deals to the providers, and there could be much wider disruption of networks than is typical in times of transition. Consumers with ongoing treatment needs related to chronic conditions should be protected from potentially broad disruption to the care networks they have taken years to establish. The continuity of care provisions of the Managed Care Bill of Rights may be insufficient to enable these consumers to change all their providers in the allotted time. They should be able to continue seeing their old providers for up to a year if those providers are willing to continue with the level of reimbursement previously earned under their contracts with the companies.

C. Premium levels: Premium disruption is as much a potential problem as provider disruption as risk pools are merged. One can see wide variation in premiums between GHI and HIP. In the direct pay market, for example, GHI currently charges about $1,000 more per month for a standardized individual contract in New York City than HIP ($1600 vs. $600). The carriers’ small group products may well evidence similar discrepancies.

In the case of the individual market, GHI has assured us that its pool is tiny compared with HIP’s, so that the merger of the two risk pools will have minimal effect on HIP’s subscribers’ premiums while providing substantial reduction to GHI’s. The Department should insure that the positive effect of that pooling is spread across GHI’s entire direct pay population, so that the tiny number of subscribers in some upstate counties outside HIP’s current service area are folded into a single direct pay risk pool with thousands of others rather than isolated into a tiny unsustainable risk pool of their own.

In the merging of group insurance pools, where the disparities may not be so great and some groups may as a result experience significant dramatic adverse rate effects from merger, the Department should limit the effects of those increases, if necessary limiting the percentage of increase permissible in any given year as a consequence of the merger.

D. Safety net programs: While Emblem Health states its intention to continue participating in the state programs, such as Family Health Plus, in which both GHI and HIP currently participate, any national company that acquires Emblem Health a few months after its conversion may not be so disposed. The conversion plan as ultimately approved should mandate such continued participation for a period of years – five years would be a reasonable minimum -- and be binding upon any successor or acquirer.

NYFAHC stands ready to work with the Department in promoting affordable coverage for all New Yorkers. We hope it will do so by denying the current conversion application. If it does not deny the application, it must strengthen consumer protections for the most vulnerable consumers to avoid severe adverse impacts from the proposed merger and conversion.

\1\ This is not the only respect in which the conversion plan is too incomplete to enable evaluation of the public interest. No details of the shareholder agreements under which the Public Asset Fund and the New York State Health Foundation would hold Emblem Health stock are provided in the plan. They have apparently not even begun to be negotiated. Without a review of those provisions, it is impossible to know whether even the state will be realizing the full value of the charitable assets which are slated for conversion.

SEMINAR 02-22-2008: "APPEALING HEALTH INSURANCE AND SOCIAL SECURITY CLAIM DENIALS: KNOW YOUR RIGHTS" (SARATOGA SPRINGS, NEW YORK)

nospam@example.com (Mark P. Scherzer) — Thu, 13 Mar 2008 13:02:29 -0400

FEBRUARY 19, 2008: On Friday, February 22, 2008, from noon to 2 p.m., Mark Scherzer will be one of two attorneys conducting a continuing legal education seminar for both lawyers and lay people at the Marriott Courtyard Hotel in Saratoga Springs, New York, entitled "Appealing Health Insurance and Social Security Claims Denials: Know Your Rights."

Mark will outline the basic rules and recommended strategies for appealing health insurance denials. The event is sponsored by ToLife!, a capital district breast cancer support organization, in conjunction with the Saratoga and Albany County Bar Associations. For attorneys, 2 CLE Professional Practice credits are available.

The cost for Saratoga and Albany County Bar Association members is $55; for non-members $75; and for law students/paralegals $25. All others not seeking credit *may attend FREE OF CHARGE*.

Preregistration is required. RSVP to the Albany County Bar Association (518) 445-7691 or email acba@albanycountybar.com. For more information, go to the events page at www.tolife.org.

NEW YORK ATTORNEY GENERAL CUOMO TO INVESTIGATE IMPROPER USE OF "USUAL, CUSTOMARY AND REASONABLE" CHARGE PROVISIONS BY UNITED HEALTHCARE, AETNA, CIGNA, EMPIRE AND OTHER HEALTH INSURERS

nospam@example.com (Mark P. Scherzer) — Thu, 13 Mar 2008 12:56:06 -0400

FEBRUARY 13, 2008: New York State Attorney General Andrew Cuomo has launched an investigation of health insurance companies' use of "usual, customary, and reasonable" charge (commonly referred to as "UCR") provisions to improperly and fraudulently reduce the amount paid to policyholders for their medical claims. We believe the Attorney General's investigation is timely and appropriate. We urge policyholders with UCR disputes to contact the Attorney General's office and to consider seeking attorney representation, where appropriate, to defend their rights.

Most insurance plans and policies contain a UCR provision, stating that while the plan will cover medically necessary care and treatment, the amount paid will be limited to the "usual, customary and reasonable" charge for the care or treatment. In HMOs or the in-network portion of Point-of-Service ("POS") plans (plans with in- and out-of-network benefits), the UCR provision is generally inapplicable because the plan has privately contracted with network provider to pay at a pre-arranged rate. The patient makes his or her nominal co-payment, and usually hears nothing further.

However, the UCR provision somes into play when treatment is sought out-of-network in a POS plan or pursuant to a traditional "fee-for-service" indemnity insurance policy (an increasingly rare policy under which the patient is free to select any physician or treatment, which is paid out of pocket, subject to later submission of the claim, and reimbursement by the insurer). In such cases, the insurance company may determine that the care or treatment is covered, but refuses to pay any amount in excess of the purported UCR.

Although New York law gives subscribers the right, on written request, to know the fee the insurer will approve for a particular elective surgical procedure or treatment, most people are unaware of this right and only learn that a reduction will be applied after the medical charges have been incurred. Having obeyed the plan's preauthorization and coverage requirements, policyholders may be shocked to discover that their health care providers (and their collection agents) are suddenly pursuing them to personally pay substantial unpaid balances. Indeed, a recurrent problem is that the purported UCR rates are far below what health care providers charge for their services in the real world. Moreover, because health insurers jealously guard the data and methodologies used to determine what is a "reasonable" charge, such determinations remain shrouded in mystery - making it extremely difficult for policyholders to evaluate or challenge the fairness of these decisions. Worse, policyholders may discover that their employer has elected an 80%, 90% or other percentage-of-UCR reimbursement formula, so that the already low UCR rate may be reduced even further.

Based on the number of UCR disputes brought to us by our clients, it appears that health insurers are increasingly relying on UCR provisions to shirk their payment obligations. Here is an illustrative example (the facts have been somewhat changed and simplified to protect the anonymity of our client):

The patient, a covered dependent child with developmental problems, had a series of specialized and expensive surgeries over the course of a 2-year period. Because of the specialized care required, the family elected to have the child treated by out-of-network providers. The family's health plan provided out-of-network coverage at 80% of UCR (with the family responsible for a 20% co-pay), but also provided that the family must first pay an annual $1,000 deductible, and that additional out-of-pocket costs would be capped annually at a $2,500 maximum. The family reasonably understood the plan to have an annual $3,500 cap for out-of-pocket costs (the $1,000 deductible, plus 20% of out-of-network charges up to, but no more than, an additional $2,500). After that, the plan would pay 100% of all out-of-network charges for the remainder of the year. Plan payments were made more or less in accordance with the family's expectations.

A year or two later, however, the family was shocked to receive a letter from the insurance company notifying them that it had previously failed to apply the UCR rate and that now, having done so, the family was liable for nearly $60,000 which the insurance company had allegedly "overpaid." When the $3,500 annual maximum (which would seem to limit the family exposure, at most, to $7,000 for a two year period) was pointed out to the insurance company, it argued that its obligation to pay 80% of out-of-network charges at first, and 100% of such charges after the $3,500 out-of-pocket maximum, was limited to its very low UCR. Consequently, the additional $60,000 constituted "excessive" fees, for which the family would have been expected - under normal circumstances - to haggle over with their physicians and hospital.

In this case, the situation was further complicated because the insurance company had not made its UCR determination at the time it originally processed the claims, so that it had already paid the physicians and hospital. Instead of going after the health care providers and asking them to repay their purportedly "excessive" fees, the insurance company, as noted above, instead sought reimbursement directly from the family. Worse, in addition to requesting reimbursement immediately, the insurance company began withholding payment on current medical claims as a way of recouping the purported overpayment.

This example illustrates the "gotcha" nature of UCR determinations. Despite reasonably understanding their plan to cap their out-of-pocket liability at $3,500, and despite obeying all plan provisions in terms of pre-authorization, etc., this family found themselves faced with $60,000 in medical charges.

New York does provide some limited protections, but few people are aware of these protections, and insurers frequently flout their legal obligations. For example, New York Insurance Law, §3217 provides: “information [shall] be furnished to insureds regarding the method upon which the usual and customary or reasonable charge is determined and the percentile of charges upon which the schedule is based.” As previously noted, policyholders can use this law to request UCR rates for particular procedures or treatments in advance of receiving them. In our experience, insurance companies have sometimes resisted providing such information on the grounds that it is "proprietary," or have otherwise provided the information in such an excerpted or redacted manner as to make the information unintelligible and difficult to evaluate.

For all the reasons set forth above, we believe that the health insurance industry's use of UCR provisions is ripe for Attorney General investigation. As reported in a press release, the Attorney General has, inter alia, filed a notice of intent to sue against UnitedHealth Group, whose subsidiaries include United Healthcare Insurance Company of New York, Inc., and United Healthcare of New York, Inc.:

The Attorney General’s investigation found that by distorting the “reasonable and customary” rate, the United insurers were able to keep their reimbursements artificially low and force patients to absorb a higher share of the costs.
....Cuomo’s investigation also found a clear example of the scheme: United insurers knew most simple doctor visits cost $200, but claimed to their members the typical rate was only $77. The insurers then applied the contractual reimbursement rate of 80%, covering only $62 for a $200 bill, and leaving the patient to cover the $138 balance.
The United insurers and many other health insurance companies relied on the Ingenix database to determine their “reasonable and customary” rates. The Ingenix database used the insurers’ billing information to calculate a “reasonable and customary” rate for individual claims by assessing how much a similar type of medical service would typically cost, generally taking into account the type of service, physician, and geographical location. However, the investigation showed that the “reasonable and customary” rates produced by Ingenix were remarkably lower than the actual cost of typical medical expenses.
The United insurers and Ingenix are owned by the same parent corporation, United HealthGroup. When members complained their medical costs were unfairly high, the United insurers hid their connection to Ingenix by claiming the rate was the product of “independent research.” The Attorney General’s notice to United expressed concern that the company’s ownership of Ingenix created a clear conflict of interest because their relationship gave Ingenix an incentive to set rates that benefited United and its subsidiaries.
....Cuomo continued, “The lack of accuracy, transparency, and independence surrounding United’s process for setting a ‘reasonable and customary rate’ is astounding. United’s ownership of Ingenix coupled with the inherent problems with the data it is using clearly demonstrate a broken reimbursement system designed to rip off patients and steer them towards in-network-doctors that cost the insurer less money.”

We hope that the Attorney General's actions will lead to greater transparency and fairness with regard to the health insurance industry's use of UCR provisions. Persons with UCR disputes should be aware that in addition to the steps being taken by the Attorney General, there may be other contractual provisions in their own insurance policies, as well as other available legal defenses, on which they can rely to successfully challenge their health insurance company. We are happy to report that based on just such defenses, we were able to reach a satisfactory resolution for our client.

If you would like to read more about the Attorney General's investigation of the health insurance industry's improper use of UCR provisions, please click on the following links:

NEW YORK COURT OF APPEALS HOLDS PRE-EXISTING CONDITION CLAUSE ONLY DELAYS (BUT DOES NOT FOREVER BAR) DISABILITY BENEFITS

nospam@example.com (Mark P. Scherzer) — Thu, 13 Mar 2008 12:11:25 -0400

JUNE 27, 2007: The New York Court of Appeals, the state’s highest court, handed down an important opinion on June 27, 2007. The decision, Benesowitz v. Metropolitan Life Insurance Co. (available from the Court of Appeals website, click here), will undoubtedly benefit many New Yorkers pursuing disability claims under individual disability policies and employer-sponsored (ERISA) long term disability plans provided through insurance policies. The Court was asked to consider a statute, N.Y. Insurance Law §3234, which applies to disability insurance policies and provides: “No pre-existing condition provision shall exclude coverage for a period in excess of twelve months following the effective date of coverage for the covered person.” Mr. Benesowitz, who started working for Honeywell International, Inc., on April 1, 2002, was disabled by October, 2002, as a result of kidney disease for which he had been treated within the 3-month period preceding his employment. The kidney disease thus constituted a pre-existing condition.

MetLife, the insurer for Honeywell’s disability plan, argued that clauses using the language of Sec. 3234 should be interpreted to bar coverage in perpetuity for any disability arising from a pre-existing condition that starts within the 12-month period. Mr. Benesowitz argued that Sec. 3234 should not be interpreted as barring him from ever receiving benefits, but that it only prevented him from receiving benefits for the 12-month period after his effective date. As with most cases involving employer-sponsored benefits, governed by ERISA, the case was initially adjudicated in federal district court, which sided with MetLife. When Mr. Benesowitz appealed, the Second Circuit Court of Appeals found the statutory language ambiguous and, in an infrequently used procedure, “certified” the question to the State’s highest court, as the final arbiter and interpreter of state statutes. The New York Court of Appeals sided with Mr. Benesowitz. Observing that Sec. 3234 was modeled on a similarly worded statute addressing health insurance policies, the Court concluded: “If insurers may exclude health coverage for up to 12 months under section 3232 but must pay benefits for medical claims related to preexisting conditions after that time period, the statute should operate the same way for group disability plans under section 3234…” In other words, “a policy may impose a 12-month waiting period during which no benefits will be paid for a disability stemming from a pre-existing condition and arising in the first 12 months of coverage,” but may not “impose … an absolute bar to benefits.”

Since many long term disability plans require an “elimination period” (a waiting period before benefits are payable) of anywhere from 3 to 6 months, Benesowitz will mean, in some cases, that the claimant suffers no loss in benefits whatsoever. If the Honeywell disability plan, for example, had a 6 month elimination period, Mr. Benesowitz would normally be required to wait 6 months (from October, 2002, to April, 2003) to receive benefits. Because the 12-month pre-existing condition period started from Mr. Benesowitz’s effective date, which likely was his hire date in April, 2002, MetLife could only refuse to pay benefits for months prior to April, 2003, so that – in fact – Mr. Benesowitz would lose no benefits at all! Because disability insurers in New York have priced their policies with the assumption that Sec. 3234 was a complete bar to coverage of disability benefits for pre-existing conditions occurring in the first 12 months of employment, we would not be surprised to see insurers pressing for increased premiums and/or lobbying the State Legislature to amend Sec. 3234 so as to overturn the Benesowitz decision.

PLEASE NOTE: New York insurance law generally governs individual, privately-purchased disability policies issued in this state, as well as employer-sponsored disability plans which are insured through group policies issued by insurance companies. Where an employer does not purchase an insurance policy, but pays disability benefits out of its own funds, i.e., a so called “self-funded” or “self-insured” plan, the plan is not obligated to follow New York insurance law.