Lawmakers raise issues with federal insurance law

The Senate Finance Committee put federal insurance law under a microscope Tuesday with a hearing on private long-term disability policies. 

The hearing focused on whether the federal Employee Retirement Income Security Act (ERISA) inadvertently helps insurers deny disability claims. ERISA largely escaped scrutiny during the health reform debate as Democrats vowed to preserve the employment-based health insurance system governed by the 1974 law.

"Abusive insurance company tactics start with having doctors with conflicts of interest review claims," Finance Chair Max Baucus (D-Mont.) said in opening remarks. "Many of these doctors are employed either by the insurance company or by companies that do a lot of business with the insurance company. These arrangements make it far too easy for the doctors to deny claims, terminate claims, or reject appeals."

U.S. District Court Judge William Acker of Alabama said one of the main problems was the law's discretionary clause, which he called a "disaster" that allows plan administrators to both interpret the plan and decide how to apply it to a particular disability claim.

Disability law attorney Mark DeBofsky testified that "the story told over the past 35 years has been one revealing an utter betrayal of those lofty goals [of ERISA] and an egregious absence of remedies, sanctions, and access to normal federal court procedures. Contrary to the clearly expressed legislative intent, the courts have transformed ERISA into a shield that protects insurance companies from having to face the consequences of unprincipled benefit denials and other breaches of fiduciary duty."

He said Congress should act to: 

- Abolish the right given insurers to grant themselves a deferential review and allow claimants the ability to present witnesses and evidence in open court;

- Provide for jury trials;

- Preclude courts from remanding benefit claim disputes to the insurers; and

- Permit awards of statutory or other damages in appropriate cases.

Other questioned how big a problem the claims denials really were.

Sen. Olympia Snowe (R-Maine) wondered what's stopping states from doing away with the discretionary clause, as Montana, Texas and Michigan have done.

And ranking member Charles Grassley (R-Iowa) said ERISA was really the jurisdiction of the Senate HELP Committee.

The American Council of Life Insurers and America's Health Insurance Plans testified that the system works well now. They both pointed out that insurers paid out more than $8.95 billion in long-term disability benefits in 2009 and that 82 percent of claimants said they were satisfied with their policies in an 2008 Harris Interactive poll.

"There's an assumption here that there's something broken right now," said Paul Graham, vice-president for insurance regulation and chief actuary at the American Council of Life Insurers. "And if you look at anecdotal evidence you will be able to find individual cases where you might have had some egregious behavior, and that's obviously quite unfortunate. But ... the idea that something's structurally wrong is not correct."