Losing Everything: Nightmare Scenarios from ERISA for Employers

Posted on February 26, 2009.

Author: Frank N. Darras, Guest Columnist

You've worked hard, achieved extraordinary academic excellence, went on to accumulate advanced degrees and for some, specialty status as a physician. For many, you've married along the way, are raising your children in the lifestyle they have become richly accustomed to and hope the insurance you get or provide at work will protect those you love. Take a long moment and think about what would happen financially to your family if you got really sick, seriously injured, disabled or died unexpectedly.

  • If you are planning on protecting those you love with the insurance you get from your employer …………. You are in BIG TROUBLE!
  • If your medical corporation provides insurance coverage to any employee besides your immediate family …………. LOOKOUT!
  • Did you and your partners all get individual disability insurance from the same agent/broker and for convenience the premiums are "list billed" and come to the corporation for payment ………… THAT IS GOING TO BE A PROBLEM!
  • Have you let your medical corporation pay your individual disability premium thinking "if I become disabled I will have the accountant reimburse my corporation in the year I become disabled" ………….. THAT IS DOUBLE TROUBLE!

Have you ever read in your group policies the word ERISA or heard your agent/broker say you're subject to the Employment Retirement Income Security Act? If you get your medical, life or disability insurance from your employer or as the employer, you cover more than just your wife and kids, too bad, ERISA applies.

Having ERISA apply to your life, disability or health insurance policy is a death sentence at its worst and leaves you with little protection when the carrier denies your claim. Why?

Did you know under ERISA you have lost your seventh amendment right to a trial by jury? "No I didn't ….. I would never have done that ….. Where did I sign away my constitutional right to having my peers decide whether I get my group medical, life or disability benefits?" Actually, you didn't need to sign anything, Congress decided for us when ERISA was passed. Stunned, shocked, well it's going to get far worse from here.

Did you know under ERISA if your group insurance company fraudulently, despicably and intentionally denies your medical, life or disability claim you cannot get any punishment damages? If your group insurance company lied then wrongfully denied and wholesale cheated you out of your benefits, under ERISA they cannot be punished. It's shocking but unfortunately true. Under ERISA there will be no consequence, no penalty, nothing that any court can order in the way of punishment.

I know what most of you are thinking, "Frank, that's not right, without punishment how is big insurance going to be accountable and responsible at claim time?" Unfortunately, under ERISA they are not going to be responsible, accountable or fair because there is no penalty and no jury to fear.

It is really sad explaining to potential clients the pitfalls of ERISA and why group insurance companies have a license to wrongfully delay, deny and kill without penalty.

Did you know that under ERISA there is no remedy for a wrongful death? Let's assume a husband and wife are both doctors and the forty years young wife is diagnosed with breast cancer early enough that with timely and proper treatment she would live a long, healthy and productive life. Unfortunately, the group carrier wrongfully and despicably delays making the claim decision so the treatment that could have cured is no longer viable. The cancer treatment window closes and the wife dies. All of us would be horrified. I can hear you saying that insurance company is in big trouble ….. that group insurance company knew there was a cure and intentionally delayed making a decision so they would not have to pay for the care ….. that is criminal. Unfortunately, there is no remedy for wrongful death under ERISA.

Unbelievable you say! No way is that true, big insurance can literally kill, people die and there is no remedy. No one is going to prison. As incredible as it sounds, it is true. There is no remedy for the wrongful death and this group insurer would only have to pay the value of the medical service they were late approving. No loss of earnings, no funeral expenses, no burial costs, nothing under ERISA. I know what you're thinking ….. This can't be true ….. Who knows about this? Now, you do!

Did you know that under ERISA, in addition to having no right to a trial by jury and no right to punitive or punishment damages, there are no extra-contractual damages either?

We all have monthly obligations, mortgages, car loans, credit card bills that require timely payment or we get penalized with late charges and the stain of our credit being ruined if the offense is repeated often enough. Let's assume you have group disability coverage through work and you have exhausted the required elimination period and you are now entitled to your group monthly benefits. You need timely payment because your obligations are stacking up and you're unable to work. It doesn't take long to get behind in the mortgage, credit cards, credit lines and car payments. Unfortunately, there is no remedy under ERISA for extra-contractual damages.

Once your credit is stained, the equity in your home or surgery center is lost and you've been foreclosed out, ERISA provides no relief. No damages for your lost equity, nothing for the stain of a bankruptcy that will follow you for seven years and, unbelievably, there are no damages for emotional distress. If the group insurer wrongfully delays or denies your claim and you suffer severe emotional distress there is no recovery.

Did I mention that under your wrongfully denied group ERISA claim that before you can file a lawsuit you need to timely exhaust and file your administrative appeal. Once your claim is denied, under ERISA you must follow the instructions in the denial letter and timely appeal or you cannot sue in court. The appeal process is very important in that all the evidence we want in front of our Judge must be submitted at the appeal stage or the administrative record will be closed. Most clients make the grave mistake of sending a one-line letter requesting an appeal and asking the carrier to reconsider the denial, not realizing they could have had competent counsel to assist in packing the administrative record with all the information and medical records the carrier didn't gather; all the before and after friends and family who could've submitted declarations regarding restrictions and limitations they observed and the stark contrast of the before disability and after disability differences. Did you know you can submit video tape interviews of your doctors, spouse, significant others, fellow employees, supervisors to perk up and bring alive your administrative record? Most clients have no idea that under ERISA, once the administrative appeal is upheld by the group insurance carrier there won't be any new evidence admitted when you get to Federal court.

Did you know that if your group insurer denies your medical, life or disability claim and you timely exhaust your administrative appeal, that you can't sue in your local state court, but under ERISA you must file in Federal court? Federal court judges are appointed for life by the President and have had their dockets full of interstate commerce, drug or white collar crime cases before ERISA. Now, our Federal courts are being inundated with every ERISA medical, life and disability case clogging up the system.

Did you know that if you have timely appealed and you were lucky enough to find a lawyer that does ERISA work and doesn't mind filing and going to Federal court, that if you're going to win your case, it will be without discovery? Under ERISA, there will be no depositions of you or your family, none of your doctors or medical providers, none of your friends, co-workers, supervisors and most disturbing, none of the group insurance company claim personnel. How can the Federal court get their arms around the reasons why your group insurer denied your claim if the people responsible for denial will never be questioned or sit on a witness stand?

ERISA hurts; it's unfair; it takes away your constitutional rights; there is no punishment, extra-contractual or emotional distress damages; you lose your right to sue if you don't timely appeal; if you do timely appeal most people don't supply what they need to perfect the claim; most don't realize if it is not in the administrative record it won't be in front of your Federal judge for consideration. All of that is hard and difficult, but did your agent/broker ever tell you that in order to win your group insurance case in Federal court you have to prove beyond a reasonable doubt that the group insurer was wrong? That's right – without any discovery and stuck with what is in the administrative record – you must prove the criminal standard of beyond a reasonable doubt. Group insurers are smart, they employ in-house doctors to supply carrier friendly opinions that the insured is "not disabled" in the disability case or that the treatment is "experimental/investigational" or "not medically necessary" in the group health insurance case, and bingo – the carrier has met their burden. Why? The standard is beyond a reasonable doubt so, if the in-house doctors for the carrier or some peer review friendly medical service says it's so, that sets up the dispute and the insured can't win unless he/she resolves all possible doubt in an ERISA case and that is a tall mountain to climb.

Are you starting to see why I captioned the article losing everything? Many of you had no idea that you had lost your consumer remedies and had to meet the criminal standard of beyond a reasonable doubt without the benefit of any live discovery in Federal court with no jury. When you add in how difficult it is to find competent counsel and how few people actually have an administrative record worthy of suing on, you can see how ERISA is chewing up even those who were aware.

For those of you who have group disability coverage, here are some important things to consider.

1.You are only able to insure 60% of your monthly earnings!
2.Your group disability policy offsets dollar for dollar with any state disability, workers' compensation benefits, social security disability insurance (SSDI), pension benefits and even monies from third parties who have caused the disability. So, if you make a monthly salary of $15, 0000 and you can insure 60% or $9,000 and you are eligible for state disability insurance of $2,300 and you qualify for SSDI of $2,400, that $9,000 worth of monthly benefits just went to $4,300. If you were injured as a result of a car accident and you recovered money from the adverse driver, your group disability carrier would get a dollar for dollar credit against any disability benefit they might owe. If you received a $100,000 personal injury recovery, your group disability insurer would have a $100,000 credit and may never have to pay a dime of benefits after all the other offsets have been taken.
3.Remember, in addition to the dollar for dollar offsets, most employees are provided group disability benefits and their employer pays the premium, so any and all benefits are taxable to the employee.
4.Your group disability coverage will only cover you for 24 months in your own occupation as a doctor, then your disability definition will change and you will have to be disabled from every occupation you are trained, educated or suited to do. That is the SSDI standard and unless you're brain dead, your education will qualify you for some occupation and your benefits will stop at 24 months.
5.Your group disability policy will only cover a mental nervous problem for a maximum of 24 months unless you're institutionalized.
6.Your group disability policy will limit your self-reported claims to 12 months for disabling conditions like CFS, fibromyalgia or chronic pain.
7.Your group disability policy is subject to cancellation, rising premiums and the uncertainty of your employers' viability from bankruptcy or closure of the business.
8.If you have group disability insurance without any individual insurance in place, ask your friends who sold them their own individual disability policies and set up several interviews with recommended agents.
9.Ask about replacing the taxable group insurance with non-cancelable, guaranteed renewable, occupation specific coverage to age 65.
10.With individual disability policies, you have a trial by jury and, if your state allows, you can sue for punishment, extra-contractual and emotional distress damages without first having to exhaust any administrative appeals.
11.With your individual policy there are no mental nervous caps on benefits nor any limitations on self-reported claims.
12.With an individual health, life or disability policy you will be paying more, but what good is something cheap if you can't use it when you need it mos

My strong recommendation is to avoid group coverage for disability all together! Buy your own policy, it will be tax-free, protect you in your own occupation, and have none of the pitfalls and disappointment group coverage brings.

If you can't afford to replace your group coverage with individual insurance, make sure you understand the features of the group coverage you've got and get competent legal help before you miss or send in the wrong information when you're appealing any denial.

With the largest disability and long-term care practice in America, I look at over 1,000 new referrals a month and see the tragic, uncorrectable mistakes policyholders are making under ERISA.

We can do better. A little education, some competent help at just the right time and a good understanding about what these policies do and, more importantly, don't do, will make a difference on whether we buy them at all or, if we get them for free, whether we will get paid on them!

Now that you know about the risks associated with ERISA-governed group insurance coverage, you can take steps to protect the lifestyle you've worked so hard to achieve.