Insurers Love "Docility"

Ever wonder why insurance companies pursue a policy of turning down apparently valid claims out of hand? I have and the only thing I can figure is that they are relying on the “docility” factor. They have found through experience that a substantial number of people will accept a turndown, right or wrong, and do nothing further about it.

One would expect an insurance company to have a tendency to say “no” when asked to pay a claim. That is not what is surprising. What is surprising is that they say “no” in cases where they know they are likely to have to pay. This is because when they say “no”, there are a slew of additional costs in defending a claim which they know they are likely to have to pay anyway.

Why they do this is a mystery which seems to have one likely solution – they do it because it saves the insurers money.

The one thing you can bet on with certainty is that insurance companies can mathematically calculate the probability of any financial result they face. They know how much the legal, medical, court, and internal costs of litigating a claim will likely be.  And, they know these costs are substantial. So, why do they do it?

They do it because they have also calculated the “docility” factor – the chance that a valid claimant will not challenge a denial of a claim for a variety of reasons. Nobody but the insurance companies know the percentage of valid, but denied, claims which are never pushed to a conclusion, but even if the number is between 10% and 20%, the savings turn out to be a big windfall for the insurance companies.

Some of the reasons people may not fight for their rights are innate - they hate conflict and controversy. Other reasons (excuses) are:

  • "You can't fight City Hall", i.e.,insurance companies are too big and powerful ever to be challenged by an individual.
  • They find it difficult to cope with stress.
  • They believe the insurance company acted fairly and made an unprejudiced decision.
  • They won’t take the risk of spending money on fees without a guarantee they will win.
  • They have an aversion to getting involved with a lawyer (I wonder if insurance companies have been fostering all of those “shark” jokes about lawyers). The vast majority of lawyers don’t bite, no matter what the jokes lead you to believe. If they are retained by you, lawyers work for you and only for you and your claim.

There is a whole host of reasons (maybe excuses) why a goodly number of people will not take on an insurance company. And, in that goodly number of people lies a treasure for insurers.

This is particularly so in disability income and long term care insurance claims. The payments for these types of claims can go on for decades and cost millions of dollars. Evading payment on 10% or 20% of these types of claims comes to a hefty amount of money saved for the insurance companies. And, since insurers do this consistently, one has to believe that they know that the “docility” savings more than offset what they spend to defend claims they know they will have to pay – if the claimants undertake and follow through on the job of properly pursuing the claim.

Advice to the leery claimant: Before you become one of the “docility” herd, have a competent insurance attorney evaluate your claim and advise you on if and how to challenge a denied claim.

Only then is it fair to yourself to decide whether or not to pursue you claim.

It's a No-Brainer

The easier things become, the harder some people make them. Wouldn’t you think that when medical science advances so that a patient can swallow a pill and replace chemotherapy with all the expense and trouble it involves, it would make the treatment process simpler? Wrong!

As President Obama said recently, insurance payment protocols, like the ship of state, are humongous, and can’t be changed quickly. Pill treatment, which would seem a no-brainer since it will lead to less medical and hospital costs for patients and therefore insurance companies, should be received with open arms by insurers. Not so.

As reported in the New York Times recently, insurance companies seem to be hung up on the issue of how to classify pill treatment. Drugs which are administered at a clinic or hospital are usually treated as a medical benefit. Prescription drug plans cover pills and normally require copayments which are sometimes substantial.

With all of the talk about how Social Security and Medicare are going broke, why don’t the insurers or the government jump on this opportunity to save big dollars on cancer drug treatment?

Some one in authority should do a fast analysis of what it costs to go to a place, have a trained medical person administer an infusion, have a doctor on premises, pay for the chemicals, the rent, equipment and personnel, and compare it to the cost of the pill medication. It seems obvious that the lesser cost would be the pill even omitting the patient’s loss of time and transportation costs.

The State of Oregon, according to the Times, is the only state so far to deal with the situation. It 2007, Oregon passed a law requiring insurers to reimburse oral and intravenous chemotherapy drugs equally. Other states, including Colorado, Hawaii, Minnesota, Montana, Oklahoma and Washington are in the process of passing similar legislation.

I’m thinking a lot more states ought to be joining the parade – and ASAP.

States! Help Your ERISA Claimants

There’s an ERISA problem that should have been eliminated years ago, but still persists to the detriment of disability claimants in too many of our states – the discretionary clause – which gives insurance companies a big leg up when contesting disability claims.

This gives the insurer, who is usually the administrator of an ERISA plan, the discretion to decide if a claim is covered by the very ERISA policy the insurer would have to pay on if the claim were approved. This power is further compounded by the decision in Firestone Tire & Rubber Co. v. Bruch, 489 US 101 (1989), in which the court ruled that a finding by such an administrator could only be overturned by a court finding that such a decision was “arbitrary and capricious," a legal phrase meaning that the court could not find a single reasonable basis upon which the decision could be based.

Needless to say, when an administrator rules against a claimant, this ruling puts a mountain in the way of the claimant on appeal. There are a legion of cases where a Federal judge has found that the decision of the administrator was all wet, but the court felt constrained to rule that the administrator’s ruling could not be changed because of Firestone.  In other words, even though the judge would have clearly found the administrator's decision incorrect, the court had to uphold the decision because it was not found to be “arbitrary and capricious”.

Adding to the problem is the Federal statute’s command that ERISA  preempts states' powers so that Federal law controls in ERISA cases. States cannot change ERISA law. But, there is an exception to this in the ERISA statute – states have the final say in the language of insurance policies issued in their state.

So, in 2004, the National Association of Insurance Commissioners, an organization of the state insurance commissioners of all 50 states, approved a model rule, proposing adoption by all state insurance commissioners, that prohibited discretionary clauses from the language of any policy issued in a state.

One would think that state insurance commissions or legislators would hop on this prohibition bandwagon quickly, but this has not been the case. As of this date, 16 states have prohibited the discretionary clause in ERISA policies while 34 states have left their citizens at the mercy of the discretionary clause when at a low point in their lives - when making a claim for disability income and treatment.

At the present time, the issue of banning the discretionary clause is before the legislature in Wyoming. Although the New York State Insurance Commission thoroughly denounced the discretionary clause as against public policy in 2006, it has yet to approve a rule giving that denunciation the force of law and leaving its citizens on a playing field heavily tilted against them when forced to make an ERISA disability claim.

Lawyers and ERISA policyholders in states where the legislature or the insurance commission has not yet righted this wrong should seriously consider writing their insurance officials to protect their citizens from this injustice.

For a list of states without discretion-banning law on their books and the addresses and phone numbers of the people to call ask for a change, click here.

Hope This Is Helpful

Do 27 years of legal battle give a foot soldier the right to offer his opinion to the world on how to run a war? I obviously think so, because here I am going out front of the world with my thoughts and ideas on ERISA, other health insurance claims and whatever else occurs to me. 

My hope is that at least one person who reads here will benefit.