Health Insurance Carriers Must Also Be Careful In What They Tell Plan Participants

I blogged recently warning employers to be careful when enrolling employees in plan benefits because the employer could be responsible to pay life insurance or disability benefits if an employee who is improperly enrolled incurs a claim. The increased liability comes from the recent Supreme Court decision, Cigna v. Amara,  allowing certain types of money damages to be considered equitable relief under ERISA, thereby opening the door to increased damage awards to harmed plan participants.

A recent Seventh Circuit decision involving health plan benefits is another example of this phenomena. The case involved an employee covered under a health plan who had had bariatric surgery 18 years earlier. She was experiencing some complications and an additional surgery was viewed as the best, although not the only, procedure to relieve her symptoms. Because she was not certain that her plan would cover the benefit, she called the plan’s call center as directed by her summary plan description for questions about coverage. She was told that the procedure would be covered. After she had the procedure, the plan refused to pay the claims, concluding that the procedure should not have been covered because the plan did not cover complications of bariatric surgery. Although these complications were arising 18 years after the initial surgery, they were nevertheless complications not covered under the plan. The health plan said that it was not bound by the statements made by the call center employee and denied coverage.

The claims were incurred in 2005 and the law suit has been moving through the court system for a number of years. The case had not been finally resolved by 2011 when the Amara case was decided. The employee added claims for relief based on the Supreme Court decision and the Seventh Circuit allowed those claims to proceed. The court concluded that it may be possible for the employee to prove that the health plan had violated a fiduciary duty to give true and accurate information about plan coverage. It appeared that the only advice the plan gave to participants who had questions was to contact the call center. The summary plan description did not say that participants should not rely on call center information nor did the summary plan description give any indication regarding how to receive a definitive answer to a coverage question.

The district court had granted summary judgment to the health plan. The Seventh Circuit reversed that decision and remanded the case to the district court for a trial to develop the facts further as to whether the health plan breached a fiduciary duty and whether that breach harmed the participant. The trial would also address the damages issue.

Among other arguments, the health plan contended that the employee would have chosen to have the procedure done in any case and so was not harmed by the fact that the plan did not pay for it. The employee, of course, claimed that she would not have undergone the procedure but would have continued with other alternatives that helped alleviate her symptoms although not as effectively. The court noted that the cost to her of the procedure without plan coverage was $77,000 while if it had been covered by the plan, with the discounts available for in-network plan providers, the cost would have been $35,000. According to the court, if the employee had known that the plan would not cover the procedure she at least could have negotiated a reduced rate if she had decided to proceed without coverage.

Like the case in my recent blog post, this case too will be worth watching. If the law develops to allow plan participants to be paid damages for improper coverage determinations, such mistakes may become more costly for plan sponsors.  Sponsors and insurance carriers must take care in making and communicating coverage decisions.