Phone: 781-535-5600 | www.phiagroup.com
The Book of Russo:
From the Desk of the CEO
The heat wave is here in Boston and so is the increased interest in self-funding. It seems that every day there are new employers, brokers, and others interested in getting in on the fun. What they all don’t realize is that there is no easy button. Building the perfect empowered self-funded employee benefit plan takes time and hard work. It requires attention to detail and a realization that you truly can control the overall cost of claims in your own unique way. Whether it’s changing your payment methodology, your access to pharmacy drugs, your contracting with facilities, or just how you cover out of network claims, the options are endless. Here lies the rub. Having all of these options makes all of us vulnerable to potential pitfalls like gaps in coverage with stop loss or language that is ambiguous at best; worst of all is the potential fiduciary breaches around the corner. This is why The Phia Group exists – to assist all of you in making the perfect self-funded plan. The opportunities are everywhere but so are the traps and the landmines. So while you enjoy a nice cold iced tea reading this quarter’s newsletter, feel happy knowing that we got your back… no matter what.
Service Focus of the Quarter: Phia Unwrapped
Phia Group Case Study
Phia Fit to Print
From the Blogosphere
The Phia Group’s 2018 Charity
Phia’s Speaking Events
Employee of the Quarter
Service Focus of the Quarter: Phia Unwrapped
The Phia Group is proud to announce that its “Phia Unwrapped” program has been generating extraordinary savings.
Wrap, extender, and other leased networks offer small discounts and audit restrictions, affording providers nearly unlimited rights. With Phia Unwrapped, The Phia Group replaces wrap network access and modifies non-network payment methodologies, securing payable amounts that are unbeatably low, based upon fair market parameters.
Phia Unwrapped places no minimum threshold on claims to be repriced or potential balance billing to be negotiated, and The Phia Group attempts to secure sign-off, ensuring providers will accept the plan’s payment as payment in full. Phia Unwrapped implementation entails setting up an EDI feed with the claims administrator, so claims are flagged, transferred, and repriced automatically. Phia Unwrapped is billed based on a percent of actual savings, leading to fair rates and no excessive costs for unprecedented savings – and if there’s pushback or balance-billing, our Provider Relations team is ready to handle it.
Out-of-network claims run through The Phia Group's Unwrapped program have yielded a whopping average savings of 74% off billed charges (three times the average wrap discount). On average, The Phia Group sees less than 2% of claims result in some form of balance-billing; these results are similar throughout many different plan types and geographies, proving that this program and these results can be replicated nationwide.
Based on our data, Phia Unwrapped has proven to yield significantly better savings than wrap networks. Can you and your clients afford to maintain the status quo in the face of results like this?
Contact our Vice President of Sales and Marketing, Attorney Tim Callender, to learn more about Phia Unwrapped. Tim can be reached by phone at 781-535-5631 or by email at TCallender@phiagroup.com.
Phia Case Study: Phia to the Rescue!
A particular plan participant, covered by a health plan whose subrogation services were provided by The Phia Group, slipped and fell while walking in a parking lot. She subsequently retained a personal injury attorney to represent her and pursue a claim against the owner of the parking lot. The Phia Group promptly placed the attorney on notice of the Plan’s lien.
After some time had elapsed, the plan participant notified The Phia Group that she had only received around $20,000.00 in settlement funds, which was almost equal to the amount of the Plan’s lien; accordingly, the participant requested a reduction, which The Phia Group considered in due course.
After doing some due diligence to confirm the settlement, and examining the considerable resources available to us, The Phia Group’s subrogation team was able to discover that this particular case had actually settled for many times the amount that the participant claimed to have received.
Armed with this information gleaned from diligent investigation, The Phia Group was able to recover the full amount of the Plan’s lien, without the need for any reduction.
Fiduciary Burden of the Quarter: Making Sure the SPD is Sufficient!
The issue of what must be present in an SPD is fairly straightforward at this point; ERISA, the ACA, and other laws have been issued and interpreted, and those that haven’t are subject to the “good faith, reasonable interpretation” guidelines that we all know and love.
In the modern self-funded industry, though, the entities drafting Plan Documents and SPDs are very often not the entities that are legally responsible for creating and ratifying them; the Plan Sponsor must ultimately approve the SPD and is ultimately responsible for the content, but it is very uncommon for the Plan Sponsor itself to do the drafting. There’s nothing wrong with this, of course; everyone uses vendors!
When the employer itself doesn’t draft the Plan Document, though, how diligent is the employer in ensuring compliance and that the document meets the needs of the health plan – and who takes the blame if the document isn’t perfect?
We at The Phia Group have seen numerous instances – both in court and out – of employers “rubber-stamping” a plan document without truly reviewing and approving it. That doesn’t change who is responsible, of course, so the Plan Sponsor could be severely handicapping itself and violating its considerable fiduciary duties to ensure that its plan documents are up to snuff.
A best practice is for TPAs and brokers to ensure that the Plan Sponsor is given an opportunity to truly review and consent to the terms of its plan document. Employers love having the hard parts of self-funding done for them – but TPAs and brokers need to protect themselves!
We also recommend making sure that a TPA’s Administrative Services Agreement holds the TPA harmless in the event the plan document is somehow noncompliant or incorrect, regardless of who has drafted it, since it is the Plan Sponsor’s ultimate responsibility to approve it.
Success Story of the Quarter: Egregious Billing
A TPA with which The Phia Group works closely has a benefit plan client that incurred an $860,000 NICU claim. Luckily, this particular client happened to be utilizing The Phia Group’s Phia Unwrapped service. Accordingly, when the claim was incurred, it was repriced based on a percentage of Medicare chosen by the Plan, and paid accordingly, at the Plan’s Maximum Allowable Charge.
A few months later, the provider sent a balance-bill to the member, attempting to force the member to pay the entire balance of the claim. The Phia Group became involved, and after a lengthy negotiation process, The Phia Group was able to get the balance settled for 17% of the amount the hospital originally demanded from the patient. The utilization of the Phia Unwrapped service saved this health plan over half a million dollars – and what’s more, the wrap network (which the Plan abandoned in favor of utilizing Phia Unwrapped) would have afforded the Plan a contractual 22% discount.
The result? Phia Unwrapped netted the Plan savings of over $400,000 above and beyond its previous wrap network – and the patient is fully protected from balance-billing via the settlement agreement.
Phia Fit to Print:
• Money Inc. – State Reactions and their Power over Association Health Plans – June 30, 2018
• Self-Insurers Publishing Corp. – Conflicting Policies and Courts: When Plan Language Creates More Litigation than Coverage – June 1, 2018
• Self-Insurers Publishing Corp. – The Practical Impact of Ariana M. v. Humana Health Plan of Tex., Inc. on ERISA Denials of Benefits – May 8, 2018
• Money Inc. – The Rising Cost of Cost Containment – May 5, 2018
• Money Inc. – Freedom Blue: Why the Trump Administration Picked Obamacare over Idaho – April 2, 2018
• Self-Insurers Publishing Corp. – Drowning in A Sea of Paper – April 1, 2018
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From the Blogosphere:
• The Tangled Web of Eligibility. Eligibility issues are typically very fact specific. Do you know the facts?
• The Complications Surrounding Intermittent FMLA Leave! Allow us to uncomplicated intermittent FMLA Leave for you.
• Bridging the Gaps Between...Everything! It’s very important that you avoid all gaps, and here’s why.
• An Addiction to Health Insurance. For too long insurance has been treated as a shield, blinding people from the cost of their care.
To stay up to date on other industry news, please visit our blog.
Click HERE to Register!
• On June 21, 2018, The Phia Group presented, “Final Rule on Association Health Plans and YOU: Phia's Take,” where we discussed the final rule and explain the significant impact it is expected to have on the self-funded industry.
• On June 12, 2018, The Phia Group presented, “The Buck Stops…Where? Pointing Fingers in the Self-Funded Industry,” where we discussed why it’s in everyone’s best interests to work together to overcome issues rather than point fingers.
• On May 15, 2018, The Phia Group presented, “The Case for Collusion: How the Power Players May Have Defrauded Us All,” where we discussed the ways in which our industry can fight back and tackle the underlying problem of specialty drug prices.
• On April 19, 2018, The Phia Group presented, “4 Horsemen of the Plan-pocalypse,” where we discussed four issues that may not presently be keeping you up at night, but will certainly be disturbing your slumber very soon.
Be sure to check out all of our past webinars!
Podcasts:Now Introducing Video Podcasts!
• On June 29, 2018, The Phia Group presented its first video podcast, “You’ve Gotta Fight, For Your Right, to Try,” where the team addresses the recently passed Right To Try Laws, and dissect the impact it may have – if any – on your health benefit plans.
• On June 22, 2018, The Phia Group presented, “Super-Empowerment,” where our hosts chat with none other than Brooks Goodison, President & Principal Partner at Diversified Group.
• On June 12, 2018, The Phia Group presented, “The Phia Group “MVP” Post-Mortem,” where our hosts discuss the recently concluded Phia Group Most-Valuable-Partners or “MVP” forum; an event that took place June 4th to the 6th at Gillette Stadium, home of the New England Patriots..
• On June 1, 2018, The Phia Group presented, “Empowering Plans: P43 - A Debrief of SIIA’s Fly-In on the Hill,” where Adam, Ron, and Brady discuss their trip to Washington, D.C. in which they took part in SIIA’s “Fly-In” event, where SIIA members met with their elected representatives to discuss self-insurance/captive insurance issues.
• On May 29, 2018, The Phia Group presented “Eliminating the Noise,” where Adam, Ron, and Brady interview David Contorno, President of Lake Normal Benefits.
• On May 24, 2018, The Phia Group presented “The Case for Collusion (Continued),” where The Phia Group’s Sr. VP, Ron E. Peck, and healthcare attorney Brady C. Bizarro as they answer the questions that you asked during our webinar on PBMs, specialty drug prices, and lawsuits alleging fraud.
• On May 17, 2018, The Phia Group presented “RBP - Yeah, You Know Me,” where The Phia Group chats once again with one of their Partners in Empowerment, Gregory S. Everett, President and CEO of Payer Compass.
• On May 7, 2018, The Phia Group presented “Everything's Bigger In Texas,” where our hosts interview Third Party Administrator, visionary, and industry expert – Caprock Healthplans’ own Executive Vice President, John Farnsley
• On April 24, 2018, The Phia Group presented “A Labor of Love,” where Adam, Ron, and Brady interview in-house specialist, VP of Consulting Attorney Jennifer McCormick, and discuss the many complicated issues surrounding surrogacy, and the costs for which benefit plans may be responsible.
• On April 18 2018, The Phia Group presented “Arresting the Financial Serial Killers,” where Adam and Ron interview the industry, and nationally, renowned Dr. Keith Smith of the Surgery Center of Oklahoma.
• On April 9, 2018, The Phia Group presented “New Kids on the Block,” where Adam, Ron and Brady interview one member of our industry’s too-small youth movement, Brian Olsen.
• On April 4, 2018, The Phia Group presented “Direct Primary Care – The Pot of Gold You’re Looking For,” where the Phia team interviews Doctor Jeff Gold of Gold Direct Care.
Be sure to check out all of our latest podcasts!
The Phia Group’s 2018 Charity
At The Phia Group, we value our community and everyone in it. As we grow and shape our company, we hope to do the same for the people around us.
The Phia Group's 2018 charity is the Boys & Girls Club of Brockton.
The mission of The Boys & Girls Club is to nurture strong minds, healthy bodies, and community spirit through youth-driven quality programming in a safe and fun environment.
The Boys & Girls Club of Brockton (BGCB) was founded in 1990 to create a positive place for the youth of Brockton, Massachusetts. It immediately met a need in the community; in the first year alone, 500 youths, ages 8-18, signed up as club members. In the 25 years since, the club has expanded its scope exponentially by offering a mix of Boys & Girls Clubs of America (BGCA) nationally developed programs and activities unique to this club.
Since their founding, more than 20,000 Brockton youth have been welcomed through their doors. Currently, they serve more than 1,000 boys and girls ages 5-18 annually through academic year and summertime programming.
On Wednesday, April 24, 2018, The Phia Group announced The Boys & Girls Club of Brockton's Youth of the Year! The Youth of the Year was given a check for $2,500, as well as a new Dell laptop! So many congratulations to Adande Bien-Aime, you have embodied what a true role model should be for the youth of America.
At the 2018 MVP Phia Forum we held a silent auction of which all proceeds were donated to The Boys and Girls Club! The auction was a hit and we cannot thank all those who donated enough for their generosity in supporting such a wonderful organization. In addition to bids on great items like a signed Tom Brady jersey, a signed Lionel Messi jersey, and more, we received many kind donations after the event. We love The Boys and Girls Club and everything they stand for, we could not have wished for a better event to support an amazing organization!
Conflicting Policies and Courts: When Plan Language Creates More Litigation than Coverage
By: Catherine Dowie, Esq. – June 2018- Self-Insurers Publishing Corp.
Mostly, working on any given subrogation file for a private, self-funded benefit plan is all about the hurry up and wait. Hurrying to communicate with the injured party, their attorney, the adjusters, investigators, and making sure everyone knows about the plan’s involvement and rights. Then waiting for the completion of treatment, the compilation of damages and some initial negotiations before racing to remind everyone of those rights, and potentially racing to the courthouse to make sure those rights are preserved. As the Supreme Court reminded us in Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, timing is everything. 136 S. Ct. 651 (2016).
Click here to read the rest of this article
The Practical Impact of Ariana M. v. Humana Health Plan of Tex., Inc. on ERISA Denials of Benefits
By: Patrick Ouellette, Esq. – May 2018 – Self-Insurers Publishing Corp.
The abuse of discretion standard has long been a proverbial ace in the hole for self-funded employee benefit plan administrators in making factual determinations that, while perhaps not popular with the participant, they believed were consistent with the terms of the plan document. While the recent Ariana M. v. Humana Health Plan of Tex., Inc. is noteworthy for many reasons, the most immediate effect will be on the Fifth Circuit’s allowance of plan administrator discretion in making factual determinations.
Click here to read the rest of this article.
Drowning in A Sea of Paper
By: Tim Callender, Esq. – April 2018 - Self-Insurers Publishing Corp.
The challenges of setting up and administering an employer-sponsored, self-funded health plan are many. One of the largest challenges a self-funded plan sponsor faces is reconciling the vast number of documents that make a self-funded health plan “go.”
When navigated correctly, these challenges yield immense results in terms of rich benefit delivery within a fiscally responsible health plan mechanism. Still, challenges remain and should be discussed openly so that we can continue to grow and strengthen our industry.
Click here to read the rest of this article.
To stay up to date on other industry news, please visit our blog.
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Phia’s 2018 Speaking Events:
Phia’s Speaking Engagements:
Adam Russo’s 2018 Speaking Engagements:
Ron Peck’s 2018 Speaking Engagements:
Tim Callender’s 2018 Speaking Engagements:
Jen McCormick’s 2018 Speaking Engagements:
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Get to Know Our Employee of the Quarter:
Congratulations to Ulyana Bevilacqua, The Phia Group’s Q2 2018 Employee of the Quarter!
Ulyana maintains great client relationships because clients can trust her to send their requests on time and that the deliverable will always contain quality work. She remains professional in her correspondence and makes sure everything is done accurately. She also puts in extra hours to ensure organization with all client requests. This reflects positively on The Phia Group because it sends a message to our clients of our professionalism and how much we care.
Congratulations Ulyana and thank you for your many current and future contributions.
World Congress 2018 Health Value Awards
On April 29, 2018, more than 350 nominees competed in the World Congress 2018 Health Value Awards to be the best and brightest applications to improve health outcomes, reduce costs and implement innovative health industry practices. The Phia Group is excited to announce we have placed Diamond in the Small Group Employer category and our co-founder and CEO, Adam Russo, has placed Silver in the Outstanding Benefits Provider category!
Phia Certification has Arrived!
We are pleased to announce our new internal Phia Certification Program. The Phia Group maintains lofty standards for the industry, and expects the same of our staff. Phia has always developed and implemented best-in-class training programs, keeping our employees up to date and comprehensively educated. As a result, our team is second to none in that regard… and today we are excited to announce a new way to show it. Phia has established its new Phia Certification Program for its employees; this internal program consists of 3 levels, each level testing an even higher caliber of industry expertise than the last.
By the end of 2018 all Phia employees, from our interns to our attorneys, will be Level 1 certified. For leaders and those seeking to take it to the next level, Level 2 of the Phia Certification Program is made available. Finally, for those who dare to dream – Level 3 is indicative of being “the best of the best” – capable of addressing any and all issues impacting our industry, as well as being able to predict the issues headed our way. Our Phia Certification Program will ensure that a consistent knowledge base and industry expertise is embedded in the entirety of our staff, providing you with the best service our industry has to offer.
The Phia Group Recognizes Diversified Group with 2018 Empowered Plan Award
At our annual MVP (Most Valuable Partners) event, we were pleased to recognize this year’s winner of The Phia Group “Trophy of Empowerment.” It is with appreciation that we publically announce the name of our 2018 Empowered Plan Award winner, Diversified Group.
After analyzing all of our MVPs based on a number of parameters including, but not limited to, collaboration with The Phia Group, a willingness to innovate, as well as application of a forward thinking methodology – reflected through efforts taken to secure the future of our industry – Diversified Group of Marlborough, CT – was a clear winner.
New Client Account Manager – Matthew Painten
As you may know, Matthew Painten has recently been promoted to Client Account Manager at The Phia Group, in addition to his Marketing Management role. Although you may already have a direct point of contact at Phia, please feel free to start communicating with Matthew directly for any and all of your requests. You may email him personally at MPainten@phiagroup.com or send an email to CAM@phiagroup.com.
See the latest job opportunities, here: https://www.phiagroup.com/About-Us/Careers
Fun at Phia:
The Phia Family is one good-looking group of wiffle-ballers! Our wiffle ball team entered the 7th annual John Waldron Memorial Wiffle Ball Tournament, where we were one game away from entering the semi-finals. We were up against some fierce competition, including some courageous Brockton Fire Fighters, that most certainly brought the heat. This tournament raised over $20,000! We are proud of the work our team did and can’t wait to play again next year.
Mostly, working on any given subrogation file for a private, self-funded benefit plan is all about the hurry up and wait. Hurry to communicate with the injured party, their attorney, the adjusters, investigators, and make sure everyone knows to about the plan’s involvement and rights. Then wait for the completion of treatment, the compilation of damages and some initial negotiations before racing to remind everyone of those rights, and potentially racing to the courthouse to make sure those rights are preserved. As the Supreme Court reminded us in Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, timing is everything. 136 S. Ct. 651 (2016).
For the most part, the bulk of the plan’s cost-containment opportunity has always come at the resolution of some liability claim, which is usually years after the bulk of the treatment and payments. Although many states require Medical Payments Coverage, Personal Injury Protection or some other form of no-fault coverage, they are typically in very small amounts. There are exceptions, of course, Michigan’s unlimited PIP scheme, potential advancement of funds in Montana under Ridley v. Guaranty National Insurance Co., and high-minimum states like New York and New Jersey, but usually very little coverage is available to alleviate the burden on a plan to pay up front or leave a member to address bills with providers directly. 951 P 2d 987 (Mont. 1997).
In some circumstances, however, acting quickly when the case begins does turn up a policy that will meaningfully impact the plan’s liability from the start, where there is a policy for a specific loss or a high no-fault policy. The problem arises when these policies are designed to be excess, which they usually are. An excess policy is a policy designed to provide coverage only when no other coverage exists. They are often inexpensive because they are designed to often only bear liability for a patient’s copayment or deductible obligations, rather than the bulk of the responsibility for medical claims. Some are also only designed to cover bills associated with a specific event or activity, such as high school sports.
This issue frequently arises not only in the context of automobile no-fault coverage, but with school and recreational policies. Schools will often secure excess policies for athletes or even students hurt in gym class, and they are common in adult recreational leagues (usually soccer, but I’ve handled a case where an adjuster was shocked to find that his company had issued a policy for a lawnmower racing league…).
So what happens when a health plan has a valid excess provision, but the accident or automobile policy that covers a specific incident does as well? Although ERISA might allow a plan to preempt state laws, policy or plan provisions may call for a slightly different analysis.
Various Federal Circuit Courts of Appeal have heard this question and have reached a somewhat surprising conclusion, especially following the Montanile decision from the Supreme Court in 2016. There is a long-standing split between the circuits on this question. See Auto Owners Ins. Co. v. Thorn Apple Valley, Inc., 31 F.3d 371 (6th Cir. 1994) (terms of an ERSIA plan are enforceable over conflicting policy language of an insurer) c.f. Winstead v. Ind. Ins. Co., 855 F.2d 430 (7th Cir. 1988) (apportioning liability for claims pro rata). Both of these cases addressed Michigan PIP policies, which provide unlimited coverage for, among other things, medical bills related to automobile accidents. Both the PIP policy and the health plans involved in the dispute had excess provisions, and in both cases the auto insurer filed suit, asking the court to declare that the that the health plan should pay the bills as primary.
The 6th Circuit concluded that the ERISA plan terms were not entitled to any deference over the terms of the auto policy and ordered the two litigants to pay the claims on a prorated basis. Straightforward enough. Neither policy had a cap on coverage, and the outstanding bills could be split on a 50/50 basis. One significant problem with this decision as applied to slightly different facts, is how does one pro-rate a theoretically infinite policy with a more standard PIP policy which might have limits of $10,000 or less. McGurl v. Trucking Emps. of N.J. Welfare Fund, Inc. , 124 F.3d 471, 485 (3d Cir. 1997) (noting that it is “unclear how the rule [prorating] would operate in practice”).
The 7th Circuit, when faced with the same issue, gave more weight to the primary purpose of ERISA. These conclusions were perfectly in line with what the Supreme Court would later point out, the whole reason that the plan, “in short, is at the center of ERISA” and “[t]his focus on the written terms of the plan is the linchpin of ‘a system that is [not] so complex that administrative costs, or litigation expenses, unduly discourage employers from offering [ERISA] plans in the first place.’” Helimeshoff v. Hartford, 134 S.Ct. 604, 612 (2013) (quoting Varity Corp. v. Howe, 516 U.S. 489, 497 (1996)). Without giving force to valid and clear terms, uniform nationwide enforcement would be undercut.
In the last 5 years, this issue has been somewhat frequently litigated in the context of non-automobile excess policies. In addition to the existing split on what weight to give the terms of an ERISA plan, courts have now drawn a distinction based on if the plan paid claims before initiating suit. Courts have allowed plans to pursue declaratory relief, obligating the insurer to issue payment in the future, but not recover from insurance policies with excess provisions once the plan has already paid claims.
This pre/post payment distinction is based on the idea that plans can only seek a monetary award with a court if they can identify a specific pool of money that they have a right to, like a settlement fund, which does not exist when benefits are being coordinated between two payors. Additionally, some insurers have argued that ERISA is irrelevant even to the determination of primary liability for payment, asking courts to leave these “run-of-the-mill contract disputes” to state courts.
As one court noted:
The paradoxical result [of this argument] is that as an ERISA plan, has fewer remedies than it would if it were a non-ERISA plan, and its beneficiary, through no fault of his own, is considerably worse off for having two policies that coincidentally had conflicting language than he would be if he had only one. One might think that the underlying purposes of ERISA and of equitable relief generally would permit a court to fashion an appropriate remedy.
Cent. States, Se. & Sw. Areas Health & Welfare Fund v. Gerber Life Ins. Co., 771 F.3d 150, 159 (2d Cir. 2014).
As long as these issues remain unresolved, health plan liability will remain uncertain, and insurers and plans alike will be encouraged to leave claims denied and turn to courts before issuing payments. This leaves plan participants to deal with bills everyone agrees will not ultimately be their responsibility, and forces plans into a position where they may risk loss of discounted rates or access to other benefits that are only available if payment is made within a specific timeframe. Health plans can seek to preserve enforcement of their terms through diligent investigation and coordination with – and education of – all parties and payors as soon as claims are incurred.
 Dakotas & W. Minn. Elec. Indus. Health & Welfare Fund v. First Agency, Inc., 865 F.3d 1098 (8th Cir. 2017); Cent. States, Se. & Sw. Areas Health & Welfare Fund v. Am. Int'l Grp., Inc., 840 F.3d 448 (7th Cir. 2016); Cent. States v. Student Servs., 797 F.3d 512, 60 EBC 1857 (8th Cir. 2015); Cent. States, Se. & Sw. Areas Health & Welfare Fund v. Gerber Life Ins. Co., 771 F.3d 150 (2d Cir. 2014); Cent. States, Se. & Sw. Areas Health & Welfare Fund v. First Agency, Inc., 756 F.3d 954 (6th Cir. 2014); Cent. States, Se. & Sw. Areas Health & Welfare Fund v. Health Special Risk, Inc., 756 F.3d 356 (5th Cir. 2014); Cent. States, Se. & Sw. Areas Health & Welfare Fund v. Bollinger, Inc., 573 F. App'x 197 (3d Cir. 2014).
The Fifth Circuit finally joined the fraternity of all other circuit courts that has held decisions made by plan administrators under ERISA Section 1132(a)(1)(B), whether legal or factual, are to be reviewed using a default de novo standard. In addition to introducing consistency across the circuit courts regarding standard of review, the en banc holding in Ariana M. v. Humana Health Plan of Tex., Inc. greatly reduced the amount of inherent deference granted to plan administrators for factual determinations. Self-funded employee benefit plans should be aware of the repercussions of no longer having the abuse of discretion standard available in the Fifth Circuit if there is an appeal regarding its factual determinations relating to, for instance, a denial of benefits.
Prior to this decision, every other circuit court except the Fifth Circuit had applied a de novo review when an ERISA plan document does not expressly grant discretion to plan administrators. These courts based their rationale on the fact that the famed Firestone Tire & Rubber Co. v. Bruch case does not make a distinction between a trustee’s legal interpretations versus their factual decisions regarding the requirement for de novo review. Ariana M. v. Humana Health Plan of Tex., Inc. is legally significant because Fifth Circuit had long held that, under ERISA, a plan administrator was entitled to an abuse of discretion standard of review with respect to its factual determinations. In short, the court to this point had given plans the benefit of the doubt for factual determinations unless the plan had made an unreasonable decision. Now these administrators will be held to the de novo standard, without deference to its factual findings. This shift the court considering an issue for the first time without this deference will likely affect how and under what circumstances plan decisions are made. Thus, it is critical to also consider the practical impact that the holding will have on plan administrators that have relied for years upon Fifth Circuit providing them with this high degree of discretion in making factual determinations even when a plan has not expressly granted them that discretion.
Fifth Circuit Standard of Review Background
Employers, and the plan administrators, traditionally have broad discretion to determine how plan terms will be used, as well as to decide which entities will have the authority to make benefits determinations, factual determinations, appeals determinations, and language interpretations. The Supreme Court in Firestone held that only if a plan explicitly delegated authority to a plan administrator, the decision would be reviewed under a heightened “abuse of discretion” standard. The Court famously stated a “denial of benefits challenged under § 1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan.” If there was no express delegation, however, the Court held that courts would need to review a denial of benefits challenged under ERISA using a de novo standard. The holding did not directly clarify whether it was referring to both legal interpretations and factual determinations for the de novo standard.
In Ariana M. v. Humana Health Plan of Tex., Inc., the Humana Health Plan of Texas argued that it had a discretionary clause granting to Humana “full and exclusive discretionary authority to: [i]nterpret plan provisions; [m]ake decisions regarding eligibility for coverage and benefits; and [r]esolve factual questions relating to coverage and benefits.” Due to a Texas antidelegation statute making discretionary clauses unenforceable, Humana agreed not to use the argument that the plan document gave it direct authority. Notably, the court remained silent on whether ERISA preemption came into play because Humana did not raise the argument. Instead, Humana relied upon the Fifth Circuit’s holding in Pierre v. Conn. Gen. Life Ins. Co. to argue that for factual determinations under ERISA plans, the abuse of discretion standard of review is the appropriate standard and therefore it had not abused its discretion in making its determination. The Fifth Circuit granted en banc review to reconsider Pierre and determine the default standard of review that would apply in these situations.
The Fifth Circuit’s decision in Ariana v. Humana Health Plan of Texas essentially reversed its own interpretation of Firestone in Pierre. According to Pierre, without delegation of authority to a plan administrator, challenges to a legal interpretation of a plan should be considered under a de novo standard of review while factual determinations were to be under an abuse of discretion standard of review. The Pierre court based its reasoning on the concept that an administrator's factual determinations are inherently discretionary and the Restatement (Second) of Trusts supports giving deference to an ERISA plan administrator's resolution of factual disputes even when the plan does not grant discretion.
The Ariana court essentially held that Pierre’s interpretation is no longer good law, despite some strong dissenting opinions, including from Judge E. Grady Jolly, who authored Pierre. The dissent focused its dissatisfaction with the majority’s opinion on the discrepancy between legal analysis and credibility determinations and a lack of express authority in Firestone.
Factual Determinations That May Now Be Subject to De Novo Review
Now that Ariana held that Firestone's default de novo standard applies when the denial is based on a factual determination, it is worthwhile to see how this change would play out in the types of factual determinations that plan administrators make on a regular basis. This is not intended to be an exhaustive list of decisions that will be affected, but instead meant to illustrate the types of complications that Ariana could create for plan administrators if they are a party to case that reaches the Fifth Circuit.
First and foremost, Humana Health Plan of Texas in Ariana used its discretion to decline to allow partial hospitalization for Ariana beyond June 5th, claiming it was no longer medically necessary. Using Pierre’s precedent, the district court concluded only that "Humana did not abuse its discretion in finding that Ariana M.'s continued treatment at Avalon Hills was not medically necessary after June 4, 2013." Plan administrators are often making factual decisions as to whether treatment is “medically necessary” and therefore whether it should provide coverage according to the terms of the plan document. In the Fifth Circuit, these plans were granted broad deference regarding these determinations because of its decision in Pierre. Similar to the rest of the circuit courts, medical necessity determinations are now subject to de novo review. However, Ariana is merely the tip of the iceberg in that these types of factual determinations are not limited only to questions of medical necessity.
Another determination in which plan administrator discretion is paramount is the application of plan document exclusions, such as excluding coverage if the treatment or care was the result of illegal or hazardous activity. Each plan document has its own set of exclusions that it can choose whether or not to apply to a given set of facts, but the Fifth Circuit had traditionally separated itself from the rest of the circuit courts up until this point as to the standard by which these exclusion determinations would be judged. Anyone who works in the self-funded industry knows how controversial and fact-dependent the practice of excluding participant claims can be for a plan administrator. Without an abuse of discretion standard and de novo standard now in place, however, these administrators may potentially be more wary to automatically exclude a plan participant’s claims due to an illegal or hazardous activity exclusion if, for example, the facts are unclear.
Next, plan administrators often make plan eligibility decisions that will be affected by the Ariana decision in the Fifth Circuit. These determinations will include, for instance, whether spouses are eligible for coverage after they dropped their own plan based on the plan’s eligibility language. Previously free from the potential second-guessing involved in with the de novo standard of review, administrators now more than ever will need to be sure to document their coverage decisions based on the plan document language and be able to defend them in court if necessary.
Administrators also make factual determinations regarding administration of high-deductible health plans (HDHPs), health savings accounts (HSAs), flexible spending accounts (FSAs). Some prime examples of these administrative issues would be deciding which items covered under an HSA would be deemed “preventive” or whether the plan had avoided first-dollar coverage under an HDHP. Similar to the above, the Fifth Circuit will now view the process of how these factual decisions were made in a much different light.
Finally, now that these plan administrators are subject to the de novo standard of review instead of abuse of discretion review, they should remember the ERISA requirement that factual determinations must be made consistently in similar scenarios in the future. Though this is not necessarily a novel consideration for plan administrators, it is a worthwhile reminder that decisions made under this “new” standard of review will be used as precedent for its decisions made in the future as well, adding to the weight of these determinations.
Patrick Ouellette, Esq., is an attorney with The Phia Group, LLC.
Patrick joined the Phia Group in 2017. He earned his B.A. in journalism and writing from the University of Rhode Island and spent time as a sports writer and also as a healthcare technology journalist. He later graduated from the Suffolk University Law School evening program with a health and biomedical concentration with distinction. Patrick has legal experience with healthcare providers and in state government. He was also a published staff member of the Suffolk University Law School Journal of Health and Biomedical Law and later served as Chief Content Editor on the journal’s executive board.
The task of reconciling governing documents is challenging for anyone, but it can be an especially daunting job for any plan sponsor, broker/consultant, or interested party mostly familiar with the fully insured platform. In that relatively simple world, everything “goes” with minimal paperwork – at least in the front of the house – but, this simplicity comes at a significant cost and with a significant lack of control and customization.
Clearly, for most employers that really look into the options, self-funding is the way to go. But, if you want to play in the self-insured world and reap the significant financial benefits of the self-funded model – get ready to read, re-read, audit, reconcile, and review more paperwork than a forensic accountant scouring financial records written in invisible ink.
In the interest of staging the optics for this brief piece, let me be incredibly clear that I am 10,000% a believer that self-funding is the best model to deliver rich and affordable health benefits, and the success of the self-funded industry is a personal goal and passion of mine. I am a firm believer that all stakeholders in the self-funded space are vital for the success of this model.
The comments made herein are not meant to demonize any one player, nor am I out to state that any particular stakeholder causes more complication than anyone else. Rather, I hope that through an honest, and a little self-critical conversation (laced with humor), we can identify some brutal truths regarding our great industry so that we can continue to work together for the betterment of self-funding, as a whole!
To approach this in an organized fashion, let’s make a list of some of the array of paperwork needed for a self-funded health plan to fully function (at least the top documents most commonly involved). From there, we can explore one or two examples that reflect “problem areas,” and/or bullet points that we should all think about when reflecting on these documents. Not all problems will be (or should be) explored in this article, but, hopefully, this conversation gets the wheels turning and points us toward improvements and solutions.
Governing Plan Document / Summary Plan Description – This is the cornerstone of every self-funded health plan. Without a governing plan document, you have.... Well... a nebulous concept of a health plan devoid of any defining rules or benefit structure, with all the details living in someone’s head and likely spread across a series of emails and meeting notes! Good luck with a government audit on that one!
Items that could be “problem areas” include:
Summary of Benefits and Coverage (SBC) – Thank you Affordable Care Act! As we all know, health insurance is confusing and saturated with paperwork. Well, thankfully the ACA saw fit to “simplify” health coverage by requiring, yes, you guessed it, more paperwork! Better hope your SBC lines up with your SPD or you might be SOL with the DOL while listening to OPP in the LBC.
PBM Agreement – And then, let’s add drugs. No, I don’t mean “let’s add drugs” in the context of a 1970s Grateful Dead, San Francisco acid test – rather, and as if it’s not confusing enough, let’s take a completely separate entity, bring them to the party to assist with a plan’s Rx benefits, and then, in the frantic insanity that is a 60 hour work week, hope that we all read over the PBM agreement to see if it lines up with the intent of our health plan and that the language in the plan document echoes that same alignment – oh, and maybe stop-loss to?
Items that could be a “problem area” include:
Network Agreement – Where to start...?
Stop-Loss Policy / Agreement – Too often we see material variances in the wording of definitions and exclusions, as between plan documents and stop-loss policies. To state the obvious, this can create significant coverage gaps, manifesting in reimbursement denials that are not necessarily invalid. Common discrepancies include a disconnect in a “medical necessity” definition or an “experimental and investigational” definition.
Additionally, what about notice provisions? While not directly related to a misalignment between plan document and stop-loss terms, this concept can create havoc when a plan-sponsor does not pay especially close attention to the notice requirements present in a stop-loss contract. More specifically, does the contract require the sponsor to provide notice to the carrier any time the Plan modifies benefits? If so, and if the Plan fails to do so, a significant (and likely valid) coverage gap may exist.
Administrative Services Agreement (typically with a TPA or a carrier on its ASO platform) – This document can tend to be the “unifier” or the “great divider.” So many solutions and pieces that make up a self-funded plan all fall together in the ASA. This document is key. I’ll say it again, KEY.
Employee / Employer Handbooks – This one just splashed onto the scene in a pretty incredible way over the past year or so.
Plan Amendments – I had a dream once, about a Plan that had not had its plan document restated in 8 years, and, during that time, the Plan Sponsor had amended the plan 16 times. All amendments existed as separate documents, referencing one another from time to time, and, oftentimes, referencing various vendors that no longer worked for the Plan. Then, the Plan Sponsor came to me and hired me in November to restate the plan for a January 1 kick off. I woke up screaming. That kept me up at night.
Notifications (of material modification; open enrollment; HIPAA privacy notifications; etc.) – While many of these may not need to line up with a plan’s specific benefit grid, network alignment, or the definition of “maximum allowable,” you can easily see how a bit more paperwork, directly impacting the member’s understanding of a plan, can be cumbersome and can easily cause confusion if not handled carefully, especially when bundled into an envelope (or email) containing a plan document and an SBC!
Miscellaneous Vendor Contracts – Take everything discussed above and add in a few more. Time to turn up the volume! All the above is enough to strike fear into the heart of the most diligent and thorough paper pushing accountants, advisors, and attorneys. But, it is the price of admission and a piece of our business that we should be aware of and work through carefully. As a best practice, every Plan Sponsor should engage in expert gap reviews of all documents and should do so on a routine basis.
To conclude, and hopefully provide some closure and definition to my thoughts, I will leave you with this: our industry is complicated. There is no denying it. Let’s acknowledge it, be willing to criticize it, and even be willing to poke fun at it.
But, at the end of the day, let’s recognize that our industry – our platform – is the best. So, we owe it to each other, as stakeholders in this space, to work hard to accomplish the goal of aligning the documents that govern the administration of a self-funded health plan.
Should the first and foremost guardian of this alignment be the Plan Sponsor? Absolutely –and with expert guidance! We are all in this together and should strive to achieve harmony in a Plan’s governing documents, wherever possible, together. All boats rise.
By Patrick Ouellette, Esq.
The Federal Drug Administration (FDA) recently issued the nation's first approval for medicine derived from marijuana-based compounds, cannabidiol (CBD). Given this news, the next reasonable question for the self-funded industry is how it will impact health plans’ coverage and exclusions of medicinal marijuana.
This has been and continues to be an unsettled area of law between federal and state statutes. Up until now, medicinal marijuana was not approved by the FDA and thus typically would either not fall under a plan document’s definition of a drug or otherwise be excluded. Traditionally, a plan offering CBD as a benefit had, on the surface, appeared to violate federal law because marijuana has been illegal at the federal level. Simultaneously, CBD was considered legal in many states, creating a conflict between federal and state law.
The FDA approval will likely not affect plans that want to continue to exclude all types of marijuana; if such plans have not already, they would only need to broaden their plan document exclusion language a bit to account for medical marijuana. Plans that do want to cover medical marijuana, however, may now see less risk in doing so now that a CBD product has been approved by the FDA. From a statutory perspective, these plans have the authority to dictate whether or not they want to cover FDA-approved CBD. Importantly, despite the fact that these plans will now have more flexibility to cover CBD, there are still administrative consequences to consider.
You can reach out to the Phia Group Consulting team here to discuss the effect of the FDA’s approval on your plans or clients.