The Ninth Circuit Court of Appeals (the federal appeals court with jurisdiction over Washington and other west coast states) is having a busy summer for insurance cases. On the heels of recent decisions regarding attorneys’ fees in ERISA-governed insurance disputes and insurers’ duty to reasonably investigate insurance claims comes the July 14, 2020 ruling in Schmitt v. Kaiser Foundation Health Plan of Washington, holding health insurers cannot design health plans that have a discriminatory impact under the Affordable Care Act (a/k/a “Obamacare”).
For decades before the ACA, it was legal for health insurers to design health plan benefits however they chose, even if those plan designs had a discriminatory impact. As long as the insurer provided the same benefits to everyone, the insurer could decide what benefits to offer and what not to offer. Insureds could not sue their insurer for designing a health plan that had a discriminatory effect.
The Schmitt ruling confirms that the ACA changed that. Part of the ACA’s purpose is to expand so-called “minimum essential coverage” under health insurance policies. There are certain minimum benefits that must be included in most health plans. This includes, for instance, emergency services, maternity care, mental health treatment, and rehabilitative treatment.
Additionally, the ACA specifically provides that insurers cannot design health plans in a discriminatory manner. It states that an insurer may not “design benefits in ways that discriminate against individuals because of their…disability.”
The Schmitt ruling emphasizes that the ACA is different from prior federal laws that had been interpreted not to prohibit discriminatory plan design. Prior to the ACA, no federal law guaranteed any person adequate health care. The ACA, on the other hand, explicitly guarantees the right to minimum health insurance benefits and prohibits designing health plans that deprive people of those minimum benefits on a discriminatory basis.
The court noted the ACA does not require insurers cover all treatment no matter how costly or ineffective. But the court emphasized insurers cannot design health coverage that has a discriminatory impact.
The Schmitt ruling is an important victory for advocates of fair insurance coverage.
In Washington, and many other states, domestic partners enjoy the same rights and legal protections as spouses. The Ninth Circuit Court of Appeals recently confirmed that domestic partnerships’ equal treatment under state law extends to ERISA plans.
ERISA plans typically give the plan administrator broad discretion to interpret the terms of the plan. This often means the plan administrator has huge leeway in deciding who qualifies for benefits under the plan. If the plan document leaves any room for interpretation, courts often defer to the plan administrator’s decision about who gets benefits, even if the decision seems unfair or counter-intuitive.
The Ninth Circuit’s decision in Reed v. KRON/IBEW Local 45 Pension Plan ruled that ERISA plan administrators’ discretion does not extend to discriminating against domestic partners when deciding who qualifies for benefits under the plan.
In Reed, David Reed and Donald Gardner had been in a committed, long-term relationship for decades, ultimately becoming domestic partners. Gardner subsequently retired and began receiving pension benefits under the ERISA pension plan sponsored by his former employer KRON television. The KRON ERISA plan entitled the spouses of pensioners who passed away to surviving spouse benefits.
After Gardner passed away, Reed filed a claim for surviving spouse benefits. KRON’s plan administrator denied Reed’s claim. The plan administrator claimed it was within its discretion to interpret surviving spouses as excluding domestic partners.
The court acknowledged that ERISA plan administrators are entitled to broad discretion, but nevertheless ruled in Reed’s favor. The court noted state law “afforded domestic partners the same rights, protections, and benefits as those granted to spouses” and nothing in ERISA required otherwise. The Court ordered the ERISA plan to pay surviving spouse benefits to Reed.
The Reed case is an important reminder that ERISA plan administrators’ discretion is not unlimited, and also represents an important victory for domestic partners.
Anyone who’s suspected their insurance company gave their claim closer scrutiny because of their race will likely find the allegations in this lawsuit alarming. In short, the insurance company was sued alleging it discriminated against insureds represented by attorneys identified on the insurance company’s secret “Jewish Lawyer List.” The insurer settled that lawsuit, but then turned around and sued the plaintiffs and their lawyers for defamation. The ensuing litigation provides a fascinating glimpse into some appalling racist insurance practices.
The case goes all the way back to 1987. Four drivers were involved in a car crash and sustained damages their insurer refused to cover, claiming the drivers’ claims were fraudulent. The drivers hired attorney Erwin Sobel to sue the insurer to obtain coverage.
In the course of litigating, attorney Sobel discovered documents suggesting his clients’ claims had been flagged as fraudulent because Sobel was Jewish. Sobel uncovered a 1983 insurer memo containing a list of about 160 Los Angeles lawyers, including Sobel – the majority of whom were Jewish. Insureds with lawyers on the so-called “Jewish Lawyer List” had their claims automatically sent to the insurer’s special fraud unit with instructions not to pay any claims. The memo directed the insurer’s agents to destroy the memo after forwarding all the lawyers’ clients to the fraud unit, and to keep the entire system secret from the insureds and their lawyers.
The insurer denied the allegations, but ultimately paid Sobel, his co-counsel and their clients $30 million to settle their allegations of discriminatory claims handling. Among other things, Sobol presented testimony from an economist showing the list contained wildly disproportionately Jewish attorneys.
The case is an unfortunate reminder that insurance practices aren’t immune from racism and discrimination.