TMA Helps Eliminate Unfair Insurance Practice
Law Feature – March 2011
Tex Med. 2011;107(3):51-55.
By Crystal Conde
When your patients purchase life, health, and disability insurance policies, they shouldn't have to worry that their benefits will be denied unfairly if they become ill or disabled. That's been a concern for years because six insurance companies operating in Texas – Hartford, Aetna, Jefferson Pilot, MetLife, Unum, and Fortis – have used provisions known as discretionary clauses in their policies that allow them to deny coverage to patients and go back on their obligation to provide health benefits.
But that stops June 1 when a state prohibition on discretionary clauses expands to all forms of health, life, and disability insurance policies issued in Texas. The state outlawed clauses in some types of disability policies on Feb. 1. Now the Texas Medical Association is pushing to take this victory nationwide.
The ban on discretionary clauses [PDF] that Texas Department of Insurance (TDI) Commissioner Mike Geeslin issued in December came after considerable lobbying by the Office of Public Insurance Counsel (OPIC), TMA, and other groups.
TMA, along with AARP, the National Multiple Sclerosis Society, the Center for Public Policy Priorities, some Texas lawmakers, and other stakeholders persistently urged Commissioner Geeslin to ban discretionary clauses. TMA supported the ban because it believes discretionary clauses are unjust, encourage misrepresentation by insurers, and deceive consumers about the terms of coverage. TMA also believes discretionary clauses present a conflict of interest because they give insurers the authority to interpret the terms of an insurance policy; in essence, the company that writes the policy also interprets the terms of the contract. In his order, Commissioner Geeslin said discretionary clauses alter the way courts review insurers' decisions on appeal and make meaningful reviews of an insurer's decision virtually impossible. He also wrote that "because a carrier may have a conflict of interest in coverage determinations, it is possible that such decisions may result in unfair and inequitable outcomes for insureds and enrollees."
He also said discretionary clauses "are unjust because they reverse the long-standing Texas common law doctrine that ambiguities in insurance contracts should be construed in favor of the insured."
Christopher Crow, MD, MBA, chair of TMA's Council on Socioeconomics, says a broader application of the ban on discretionary clauses will help level the playing field for patients nationwide.
"When insurers are prohibited from using discretionary clauses in contracts, they can't change the rules mid-game," he said.
Twenty-three other states prohibit discretionary clauses in some fashion. According to OPIC Executive Director Deeia Beck, Texas has one of the strongest bans nationally because it includes life, health, disability, and HMO contracts. Some state prohibitions apply only to disability insurance policies, she says. Additionally, the National Association of Insurance Commissioners adopted a model statute prohibiting such clauses altogether.
TMA joined the Physicians Advocacy Institute (PAI) and the American Medical Association in asking the federal government to prohibit any insurance policies that include discretionary clauses from being listed as "qualified" on the health insurance exchanges created by the health system reform law. The law establishes the exchanges to offer patients a choice of insurance plans.
PAI is a not-for-profit advocacy organization established in 2006 with money from the settlement of organized medicine's class action antiracketeering lawsuit against for-profit HMOs to guarantee insurers' compliance with the settlements and to develop projects and tools that guarantee the viability of physicians' medical practices and their ability to deliver quality patient care.
Cameron Staples, PAI Compliance Committee chair, says prohibiting insurance plans in health insurance exchanges from using discretionary clauses will protect patients and physicians involved in the exchanges.
"If insurers participating in the new exchanges aren't permitted to use discretionary clauses in their contracts, it will help ensure that patients' coverage decisions aren't warped by an insurance company's financial interest," Mr. Staples said.
He adds that federal standards often become the gold standard for private insurance.
"Even if the prohibition on discretionary clauses isn't binding beyond the health exchanges initially, it builds a foundation for a principle that could become an established business standard for private insurers," Mr. Staples said.
Ms. Beck praised TMA's advocacy for federal restriction of discretionary clauses.
"Other states that have fought discretionary clauses and have failed would welcome a federal regulation with open arms," Ms. Beck said. "The federal government has the ability to act to prohibit use of discretionary clauses by insurers participating in the exchanges. It's a great effort and one that I think can be achieved."
TMA began supporting OPIC, a state agency that represents the interests of consumers in insurance matters, in its fight against discretionary clauses in 2009. In a letter that year to Commissioner Geeslin, then-TMA President William H. Fleming III, MD, asked TDI to prohibit discretionary clauses as unfair, deceptive insurance business practices.
Discretionary clauses, Dr. Fleming wrote, create a "fox guarding the henhouse situation that serves to provide the insurer with the authority to consistently deny benefits that a reasonable insured person would believe falls within the terms of the policy."
Rep. Mark M. Shelton, MD (R-Fort Worth), also supported OPIC's push. Representative Shelton wrote TDI last fall urging Commissioner Geeslin to adopt OPIC's proposed rule. He says prohibiting discretionary clauses upholds the integrity of an insurance carrier's contract with a patient.
"A contract is a contract, and one party should not have the ability to arbitrarily alter a contract to benefit itself after terms have been agreed to," he said.
The Texas Association of Life and Health Insurers (TALHI), America's Health Insurance Plans, the American Council of Life Insurers, and the Texas Association of Health Plans opposed eliminating discretionary clauses.
Jennifer Cawley, executive director of TALHI, says Ms. Beck inaccurately described discretionary clauses as giving insurers broad claims-determination decisions.
"The fact is the state and federal regulations regulate the internal claims processes. The existence of a discretionary clause in a policy form doesn't in any way limit the availability of a state's consumer protection remedies," Ms. Cawley said.
She adds the insurance industry included discretionary clauses in disability income policies for decades and paid billions of dollars in disability claims.
"Disability claims decisions are complex and can involve the interpretation of a great deal of information about the claimant's medical condition, work environment, available workspace accommodations, potential for vocational rehabilitation, and other factors," Ms. Cawley said. "Discretionary clauses are legal standards and only take on importance in the context of determining the standard of judicial review of the disputed benefit determinations in litigation, which actually is a very small portion of the determinations made by claim administrators."
In its comments to Commissioner Geeslin, TMA pointed out that many federal courts noted "questionable" claims denial procedures by insurers using discretionary clauses.
Commissioner Geeslin said that TDI anticipates that banning the clauses "will likely result in an increase in the uniformity of claims review procedures and a decrease in questionable coverage determinations. …"
Ms. Cawley says it's hard to say what impact the prohibition on discretionary clauses will have on consumers and the insurance industry.
"Our fear is always that when a tool to keep litigation costs down is taken away from insurers, the premiums will go up, the price of doing business in Texas will go up, and the cost could be passed on to consumers, especially in supplemental disability policies," she said. "Our concern is that employers will no longer offer disability income products to their employees. We're afraid consumers in the end will lose out because they won't be offered these disability policies and/or the cost could go up."
Ms. Cawley says TALHI's member companies have not indicated they plan to sue or lobby the legislature to overturn the commissioner's order.
Insurance commissioners of other states prohibiting discretionary clauses have concluded that such marketplace disruption is unsubstantiated.
"Most western states have discretionary prohibition clauses in law or rule, without reported evidence of cost increases or market withdrawal based on discretionary clauses," said Washington State Insurance Commissioner Mike Kreidler when adopting that state's ban.
TMA also noted in its comments to Commissioner Geeslin that discretionary clauses began being prohibited some 10 years ago.
"Clearly, there has been adequate time for any adverse rate impacts to have been discovered and reported," the association said. "Yet, TMA is aware of no compelling objective evidence that supports the insurance industry assertion of increased costs."
Evening It Up
Once the ban on discretionary clauses in all Texas health, life, and disability insurance policies issued takes effect on June 1, Ms. Beck says, the legal landscape will give consumers a "level playing field" because they will have greater legal recourse when fighting insurance company coverage denials.
"Once discretionary clauses have been eliminated from insurance policies, when a consumer files a claim against an insurer for denial of benefits, he or she will receive a full, fair court review of the case facts. The insurance company isn't given any presumptive weight in the legal proceeding," Ms. Beck said.
Ms. Beck adds that prohibiting discretionary clauses will have a positive impact on the patient-physician relationship.
"Physicians won't see as much insurance company influence in terms of how they practice medicine and the treatments they recommend for patients. For example, the ability to make care determinations for disabled patients will lie with the physician, not the insurance company," she said.
She says the ban on discretionary clauses should result in physicians spending less time in court testifying for patients victimized by a discretionary clause.
Ms. Beck says TMA's assistance in advocating on behalf of physicians and patients was invaluable and made a difference in OPIC's ability to see the new insurance regulation come to fruition.
Crystal Conde can be reached by telephone at (800) 880-1300, ext. 1385, or (512) 370-1385; by fax at (512) 370-1629; or by e-mail.
Legal articles in Texas Medicine are intended to help physicians understand the law by providing legal information on selected topics. These articles are published with the understanding that TMA is not engaged in providing legal advice. When dealing with specific legal matters, readers should seek assistance from their attorneys.