ERISA (The Employee Retirement Income Security Act) - A Trap for the Unwary

ERISA, the Employee Retirement Income Security Act, is an oxymoron, at least with respect to employer-funded health insurance plans. By looking at the title of the Act, one would think that it was enacted to protect employees. In practice, however, with respect to health insurance benefits, it protects only insurance companies and employers.

In theory, the insured employees are supposed to select a doctor of their choice whereby they pay their co-pay plus a deductible (if any). The employee and the doctor both expect that the balance, or at least a specified portion of the balance (typically 80%), will be paid by the health insurance company. The insurance company has pre-contracted individual doctors or “participating providers” (providers) in their network who have agreed to accept a predetermined rate for specific services provided. In the case of such “in-network” providers, the system usually works just as intended.

The situation where ERISA hurts the unsuspecting employee and the doctor is when the employee chooses a “non-participating” or “out-of-network” provider for services. In practice, the employee typically does not have, and has not been given, a fully copy of his or her health insurance plan. The law only requires that the employer deliver a “summary of benefits.” The out-of-network doctor also has no access to the plan document.

Before treatment begins, the nonparticipating doctor’s office secures preauthorization from (or at a minimum confirms coverage with) the health insurance company for the required procedure. However, preauthorization does not assure the nonparticipant doctor that he or she will be paid for their work. In an effort to protect itself, the nonparticipating doctor will typically have the patient sign an “assignment of benefits.” This authorizes (i) the insurance company to pay the nonparticipating provider directly, (ii) the nonparticipating doctor, on behalf of the employee, to appeal any payment decisions of the insurance company, and (iii) the release of confidential medical records of the patient needed to appeal the case. The assignment of benefits form usually obligates the patient personally for any monies that the provider cannot collect from the patient’s health insurance company.

After the services are performed, the nonparticipating provider then bills the insurance company the usual and customary fee for any such procedures for the geographic area in which such services or procedures were performed. Standard operating procedure on the part of many health insurance companies is to pay an out-of-network provider a small percentage of the usual and customary fee. The provider, relying on the assignment of benefits, then institutes a “provider appeal.” After putting the appeal on the shelf for many months (or losing it once or twice), the insurance company may tell the provider that it has no appeal rights and all appeals must be instituted by the patient. Or, in the alternate, the insurance company may write to the patient (who no longer has contact with the provider) denying the appeal and sending him or her one or two pages from the plan which sets forth the patient’s appeal rights.

The patient may not communicate with the provider in time for a first level appeal to be instituted, or the plan may require a series of appeals (typically two in-house and another by an independent authority) before any legal action may be taken: the filing of a lawsuit in federal court under ERISA to enforce the health insurer’s payment obligations.

It is only after such a lawsuit is filed by the provider, that the provider is informed (for the first time) that the insured’s plan prohibits the assigning of benefits to a provider, and, thus, the provider does not have standing to bring the suit. Even if the provider enlists the patient as an additional plaintiff, curing the standing issue, the insurance company then claims that the patient did not exhaust his or her administrative remedies (2 timely internal and 1 external appeal) before filing a lawsuit. Very few patients or providers have the time or energy (or even can cooperate and coordinate with each other) to jump through these hoops. Unfortunately, case in and case out, the complaint can be dismissed on summary judgment on this basis. When faced with such a motion, the plaintiff (provider and patient) must allege and provide proofs that even had they appealed through all levels, their appeal would have been futile. This is not an easy burden to overcome. And only after a plaintiff survives this motion practice, can the case be heard on its merits. Unfortunately, few patients or providers can afford extensive and expensive litigation in federal court even if they can get past the “procedural” hurdles of nonassignment and nonexhaustion. Most of these cases die on the vine, a victim of attrition.

The State of New Jersey, Department of Insurance and Banking (“DOBI”) has recognized this inequity and has set up an arbitration procedure for providers against in-state insurance companies which gives the provider its own rights and the ability to dispute allowed fees. Unfortunately, DOBI does not make this program available against out-of-state insurance companies. This leaves the provider and the patient with the ERISA system in which the cards are stacked against them. The end result is that the out-of-network provider is usually left to accept ridiculously low reimbursement amounts and/or having to sue their patients for unpaid balances.
Neither option is attractive or particularly good for business. If the provider sues their patient, the patient may be saddled with a huge judgment (for 20 years or more) that he or she cannot afford to pay or, if they have assets, their assets may be attached and can deplete their life savings.

New patients and providers dealing with out-of-state insurance companies would be wise to learn the pitfalls in the system which can potentially expose each to great, sometimes catastrophic, loss.

If you are a medical professional (especially a specialist) who does not participate in many (or any) networks, have your office manager or billing professional contact our office for a free, in-house consultation. We’d be happy to review your files and help you better navigate these treacherous waters. If you are a patient facing a legal battle from a provider trying to collect, also give us a call for a free consultation.