The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law designed to protect the interests of employee benefit plan participants and their beneficiaries. While ERISA applies to various types of employer-sponsored benefit plans, its application to self-funded health and disability plans is particularly significant and is not well understood. Understanding how ERISA governs self-funded plans can be vital to ensuring that you can adequately protect the rights to which you are entitled as a plan participant or beneficiary under an ERISA plan.

What is a Self-Funded Plan?

A self-funded (or self-insured) health and disability plan is one in which the employer assumes the financial risk for providing healthcare and disability benefits to its employees. Unlike fully insured plans, where an insurance company underwrites the policy and bears the risk, a self-funded plan means the employer directly pays any benefits. Often, employers will contract with third-party administrators (TPAs) to handle claims processing and administrative duties, but the financial responsibility remains with the employer.

Key ERISA Provisions for Self-Funded Plans

1. Preemption of State Laws: A prominent feature of ERISA is its preemption clause – as federal law, ERISA, rather than state law, governs employee benefit plans. It also exempts employers from state insurance regulations. This aspect of ERISA benefits self-funded plans by allowing employers to operate with uniform expectations, and therefore higher efficiency, regardless of what state they are in. Because they are not typically considered insurance under state laws, these plans are generally not saved from preemption.
2. Fiduciary Duties: ERISA imposes stringent fiduciary responsibilities on those who manage and control plan assets. Fiduciaries must act solely in the interest of plan participants and beneficiaries. This includes adhering to prudent management practices, avoiding conflicts of interest, and ensuring that plan assets are used appropriately. For self-funded plans, the employer or designated fiduciaries must be diligent in meeting this duty; when an employer breaches a fiduciary duty owed to an employee, the employee may pursue its damages directly from the employer, as opposed to an insurance company or third party.
3. Plan Documentation and Reporting: ERISA mandates comprehensive documentation and reporting requirements for self-funded plans. For example, plan participants must be provided with a Summary Plan Description as well as information about any updates or amendments to the plan, and a report of the Plan must be filed every year with the Department of Labor.
4. Claims and Appeals Procedures: ERISA requires self-funded plans to establish fair and transparent claims and appeals procedures. Plans must give participants a process for filing claims and appealing denied claims. The purpose is to ensure that each claim gets a full and fair review.

Advantages and Drawbacks of Self-Funded Plans under ERISA

Many employers choose self-funded plans based on the advantages they offer under ERISA, including:

1. Cost Savings: Fully insured plans include factors that employers can avoid by self-funding, like insurance profit margins, risk charges, and administrative costs. This tends to be particularly beneficial to large employers with predictable healthcare expenses.
2. Plan Customization: Self-funded plans allow employers to obtain coverage that fits their specific needs, including features unavailable in fully insured plans, like wellness programs or disease management initiatives.
3. Control Over Plan Design: Employers have more control over the terms and conditions of the plan, allowing them to make decisions that best align with their business objectives and employee needs. This includes determining coverage levels, provider networks, and cost-sharing arrangements.
4. Cash Flow Benefits: Self-funding can save employers substantial money in high insurance premiums, allowing them to put the money they would otherwise spend on premiums to better use.
5. Preemption of Adverse State Laws: Self-funded plans are typically not governed by state laws that otherwise apply to insured plans.

While self-funded plans offer numerous benefits, they also present challenges that employers must navigate to ensure compliance and effective plan management:

1. Financial Risk: The main issue with self-funded plans for employers is the assumption of financial risk. Employers must be prepared to cover unexpected high-cost claims, which can be particularly challenging for smaller employers.
2. Regulatory Compliance: Maintaining compliance with ERISA’s fiduciary duties, reporting requirements, and claims procedures can be complex and challenging. Employers must stay informed about regulatory changes and ensure their plan administration practices meet ERISA’s standards.
3. Administrative Burden: Managing a self-funded plan requires significant administrative effort. Employers often rely on TPAs for claims processing and plan administration, but they must still oversee these activities to ensure compliance and effective plan operation; self-funded employers may be held liable even when a TPA is at fault for violating a claimant’s rights.

For employers, self-funding a plan may have both benefits and drawbacks. Self-funding allows employers more flexibility with plan design and can help keep premium payments as low as possible. However, self-funding employers also take the risk of having to cover unpredictable and expensive claims. If you or someone you know has brought a claim under a self-funded ERISA plan that you think has been improperly denied, reach out to the McKennon Law Group PC for a consultation at no charge.

The Employee Retirement Income Security Act of 1974 (ERISA) provides standards for private employer-provided group insurance plans, including disability, life, accidental death and dismemberment, pension and health insurance plans. One of ERISA’s critical protections is its provision of a federal cause of action for participants and beneficiaries to recover benefits due under a plan.

Understanding ERISA Claims and Insurer Obligations

ERISA imposes fiduciary duties on plan administrators and insurers – they are required to act in the best interests of plan participants. This includes:

• Providing complete and accurate information: Insurers must ensure that plan participants receive necessary documentation, such as Summary Plan Descriptions (SPDs) and explanations of benefits.
• Processing claims promptly and fairly: Insurers must adhere to established timelines for processing claims and appeals, providing clear and detailed reasons for any denials.
• Upholding fiduciary duties: Insurers must act with the utmost care, skill, prudence, and diligence when managing plan assets and handling claims.

Unfortunately, insurers often mishandle ERISA claims, which can cause financial hardship because of a claim denial or by an undue delay of benefits. Insurers can mishandle claims in many ways:

• Disability insurers cherry-picking claimants’ medical records and intentionally interpreting them in a way that is unfavorable to their claims.
• Insurers giving more credence to medical reviewers than to the claimants’ own treating doctors. Insurers will pay “independent” peer review specialists, or “paper review” doctors and nurses who never interact directly with the claimants or their treating physicians and provide opinions based on nothing more than reviewing the medical records available to them.
• Insurers sometimes mailing time-sensitive notices to the wrong address or not mail notices at all, then lapsing a life insurance policy based on failure to pay a premium or provide information within a certain time.
• Insurers improperly relying on exclusions or other policy provisions in a manner not tenable under existing law or not consistent with the applicable facts.

When insurers fail to meet these obligations, plan participants can seek recourse through the process set forth by ERISA:

Administrative Appeals

Step 1: Review the Denial Letter

When an ERISA claim is denied, the insurer must provide a written denial letter detailing the specific reasons for the denial, referencing the plan provisions on which the denial is based, explaining the procedure for appealing the decision and giving a date by which the appeal must be filed. This letter is crucial as it outlines the grounds for the denial and the steps the participant must take to challenge it. To submit an effective appeal, you must first know what issues or items the appeal should address.

Step 2: File an Appeal

ERISA mandates that plans establish a fair and reasonable process for participants to appeal denied claims. You typically have 180 days from the date of receipt of the denial letter to file an appeal. The appeal must be thorough and include:

• A detailed explanation of why the denial is incorrect: This should address the reasons provided in the denial letter and cite relevant plan provisions and medical evidence.
• Supporting documentation: Include all relevant medical records, expert opinions, personal statements and any additional evidence that supports the claim.

Step 3: Await the Decision

The insurer is required to review the appeal and issue a decision within a specified timeframe. For a disability claim, for example, the decision must be issued within 45 days, unless the insurer has a legitimate need for more time, in which case it can take up to 45 more days as long as it provides written notice of its need for more time (“special circumstances”) before the first 45-day deadline. If the appeal is denied, the insurer must provide a detailed explanation of the reasons for the denial and notify the participant of their right to file a lawsuit in federal court under ERISA.

Filing a Lawsuit in Federal Court

Once your appeal is denied, you have exhausted your administrative remedies and can file a lawsuit in federal court. ERISA grants federal courts jurisdiction over these claims, though some plans allow claimants the option of filing suit in state court.

Damages Available Under ERISA

ERISA provides for only specific, limited damages:

• Recovery of benefits: You can seek payment of the benefits due under the plan.
• Statutory penalties: For particular violations, such as failure to provide requested plan documents, you can seek statutory penalties.
• Attorney’s fees and costs: ERISA allows you to recover attorney’s fees and costs by making a motion for the court to order the insurer to pay your fees and costs. The court does not automatically award fees and costs – it requires a demonstration of some success on the merits of the case, and the court has broad discretion in whether to award fees and costs and if so, how much to award.

Evidence and Administrative Record

ERISA cases are often decided de novo, meaning that the court essentially steps into the insurer’s role of reviewing the information included in your initial claim, the insurer’s claim file, and your appeal and decides whether a claim denial was appropriate without any deference to the claim administrator’s decision. The administrative record is complete when the insurer issues its final determination on your appeal, and you will only be able to admit additional evidence that goes outside the administrative record in limited circumstances. For example, if you had a claim for Social Security Disability Income benefits pending at the time the insurer denied your appeal, then the Social Security Administration later issues a decision on your SSDI claim, the court may use discretion to admit the SSA decision into evidence.

In cases that are not decided de novo, the court determines whether the insurer’s decision was an abuse of discretion. This standard of review is highly deferential to the insurer, meaning the court will find in the insurer’s favor as long as it determines that the insurer had at least some reasonable basis for denying your claim. For example, it is an abuse of discretion for an insurer to purposely exclude important evidence, like MRI or x-ray imaging when providing records to an independent review specialist. However, this standard of review is more difficult for ERISA plan participants and their beneficiaries as insurers or employers have broad discretion in deciding claims.

Additional Remedies and Considerations

• Extra-Judicial Complaints: You can file a complaint with certain administrative agencies. For example, you can submit a complaint to the Department of Labor’s Employee Benefits Security Administration (EBSA), which oversees ERISA compliance. While the EBSA does not represent individual participants, it can investigate potential violations and take enforcement action against insurers. Additionally, you may submit a complaint to the appropriate state agency that oversees insurance matters, for example, the California Department of Insurance.
• State Law Claims: ERISA generally preempts state law claims related to employee benefit plans. However, you may still be able to pursue state law claims in certain limited situations. You can also pursue recourse in state court if your policy is exempt from ERISA. For example, group insurance plans provided by religious and government organizations and self-funded policies are typically not governed by ERISA.

Conclusion

When your insurer or employer mishandles your ERISA claim, you are not without recourse. By understanding the steps involved in filing administrative appeals, pursuing litigation in federal court, and exploring additional remedies, you can protect your rights and secure the benefits you are entitled to. Given the complexities of ERISA, seeking legal counsel experienced in ERISA litigation can significantly enhance the likelihood of a successful outcome. If your ERISA claim has been denied or you are considering submitting a claim, reach out to the experienced ERISA attorneys at the McKennon Law Group PC for a free consultation.

If you have insurance coverage through an employer-sponsored benefit plan that is governed by the Employee Retirement Income Security Act of 1974 (ERISA), it can be vital for you to understand the timing and deadlines related to the claims process. ERISA sets forth specific guidelines that insurers and administrators must adhere to when processing claims and appeals. One critical aspect of these guidelines is the timeframe within which the insurer or administrator must provide a decision on appeal. Failure to adhere to these deadlines can have significant implications for both the insurer and the claimant.

The ERISA Appeals Process

Pursuant to the ERISA regulations, you have the right to appeal the denial of your claim for benefits, and in fact ERISA requires that you go through the appeals process and exhaust your administrative remedies prior to suing the insurer or administrator. This appeals process is typically the first step in seeking review of an adverse benefit determination, such as a denial of coverage for medical treatment or disability benefits.

When you submit an appeal, the insurer or plan administrator must review the appeal and issue a decision within a specified time. For non-urgent health insurance claims, ERISA regulations generally require the administrator to make a decision within 30 days after receiving the claim. However, this period can be extended by an additional 15 days if the administrator notifies the claimant in writing, explaining the need for the extension before the initial 30-day period ends. For life insurance and accidental death and dismemberment claims (“AD&D”), the claims administrator must make an initial decision on a life or AD&D insurance claim within 90 days after receiving the claim. This period can be extended by an additional 90 days if the administrator notifies the claimant in writing before the initial 90-day period expires, explaining the need for the extension and providing the date by which a decision is expected.

For disability claims, the appeal decision deadline is 45 days from the date the appeal is received, but the insurer or administrator can take up to an additional 45 days if they demonstrate that failing to meet the first 45-day deadline is warranted due to “special circumstances.” For example, the insurer or plan administrator will review your medical records in deciding your claim, and these reviews typically consist of having the records reviewed by third parties who provide reports, providing you an opportunity to respond to any inquiries made by these reviewers and their reports, and obtaining recent or ongoing medical records. Courts have held that because such events are typical in disability claim reviews, failing to meet an appeal decision deadline due to waiting for updated medical records, or for you to respond to a third-party report, for example, do not constitute special circumstances that justify missing the deadline.

Consequences of Missing the Deadline

A vital regulation of ERISA is that if an insurer fails to render a decision on your appeal within the appropriate period (or any extended period that may apply), you may consider your appeal denied and therefore, your administrative remedies exhausted. The significance of this rule is two-fold: First, it allows you to continue moving toward an ultimate conclusion, barring the insurer from indefinitely delaying its decision and holding you in limbo. Second, it can impact the evidence that will come into play when you sue the insurer and/or administrator. If the insurer or administrator misses the 45-day deadline for an appeal decision for disability claims without notifying you before the deadline of special circumstances justifying a delay, the claim will be deemed denied and you may consider your administrative remedies exhausted as of the 45-day deadline date. This allows you to properly file suit in federal court any time after that date, meaning that your claim is no longer on the insurer or administrator’s schedule, but on the court’s schedule. Additionally, the court’s review is limited to the administrative record at the time of its final decision, so the insurer or administrator may be unable to develop additional evidence to support its denial of your claim. In addition, the de novo standard of review would apply even if the abuse of discretion standard would have otherwise applied.

For example, the insurer may contract with an independent medical expert to provide a report based on your medical records. If the insurer misses the deadline for your appeal decision and you sue to recover your benefits, the administrative record in court will consist of the evidence available to the insurer at the time of the deadline. Thus, if the insurer had not yet provided you with that independent expert’s report, that report will not become part of the administrative record without permission from the court. The result could be that the insurer’s primary piece of evidence to support its denial of your claim is not considered by the court, thereby increasing your chances of a successful outcome.

How to Address a Missed Deadline

If your insurer or plan administrator misses the deadline to provide you with a decision on your appeal, you should take proactive steps to protect your rights:

1. Documentation: Keep detailed records of all communications with the insurer or administrator regarding the appeal. This includes the date the appeal was submitted, any acknowledgments received, and subsequent follow-ups.
2. Communication with the plan administrator: write a letter to the plan administrator and to the claim administrator confirming that it is your position that appeal deadline has passed without an appropriate decision and detail the consequences of their failure to comply with the ERISA deadlines.
3. Consultation with Legal Counsel: Consider consulting with an attorney who specializes in ERISA claims. Legal professionals can provide guidance on navigating the appeals process and ensuring compliance with all procedural requirements.
4. Timely Action: If the deadline passes without a decision, promptly notify the insurer or administrator in writing that you consider your administrative remedies exhausted. This notification should be clear and concise, documenting the failure to decide within the required timeframe.

Once your administrative remedies are considered exhausted due to the insurer’s or administrator’s failure to decide within the ERISA deadline, you may file a lawsuit to have a federal court review the administrative record and provide a decision on your claim.

Conclusion

Timely resolution of appeals under ERISA is crucial for both insurers and claimants. Insurers and administrators must adhere to strict deadlines when reviewing appeals to avoid the claimant considering their administrative remedies exhausted. For claimants, understanding these deadlines and knowing their rights under ERISA is essential for navigating the appeals process effectively. By being aware of these regulations and taking proactive steps when necessary, you can protect your rights to challenge benefit denials obtain the benefits to which you are entitled under your policy.

If your ERISA claim has been denied or you have not received a timely decision, reach out to the experienced ERISA attorneys at McKennon Law Group PC at 949-504-5381 for a consultation at no charge.