2. For The Defense ■ August 2016 ■ 47
mental health benefit requirement insofar
as it applied to insurers selling insurance
contracts to employee health benefit plans.
Yet there is also a “deemer” clause that
preventsstatesfromdeemingemployeewel-
farebenefitplanstobeintheinsurancebusi-
ness,protectingplansfromthestates’reach.
ERISA,section514(b)(2)(B).BecausetheSu-
preme Court in Metropolitan Life Insurance
Co. v. Massachusetts restricted regulation
under the saving clause to insurance com-
panies and insurance contracts, it follows
that uninsured ERISA benefit plans could
not be regulated by the states. As a result,
ERISApreemptionprovidesconsistentlegal
rightsandremediesforemployeesandtheir
dependents throughout the United States.
Most recently, the Supreme Court, in
Gobeille v. Liberty Mutual Insurance Co.,
reaffirmed the sweeping preemptive effect
of ERISA. In a 6–2 decision written by Jus-
tice Anthony Kennedy, the Gobeille Court
held that state laws that govern plan report-
ing, disclosure, and record keeping were
preempted by ERISA and that preemption
in this situation was “necessary in order to
prevent multiple jurisdictions from impos-
ing differing, or even parallel, regulations,
creating wasteful administrative costs
and threatening to subject plans to wide-
ranging liability.” 136 S. Ct. 936, 939 (2016).
At issue in Gobeille was the validity
of a Vermont statute and regulation that
required health insurers, healthcare pro-
viders, healthcare facilities, and govern-
ment agencies to report any “information
relating to healthcare costs, prices, quality,
utilization, or resources required” to the
Vermont Department of Banking, Insur-
ance, Securities and Health Care Admin-
istration, now called the Department of
Financial Regulation, including data relat-
ing to health insurance claims and enroll-
ment, for compilation in an all-inclusive,
all-payer claims database.
TheVermontstatuteandregulationwere
enacted to help identify healthcare needs
and inform healthcare policy, compare
costs between various treatment settings
and approaches, determine the capac-
ity and distribution of existing resources,
and provide information to purchasers
of healthcare. With this all-inclusive, all-
payer data bank, Vermont expected to be
able to control healthcare outcomes and
costs better.
Liberty Mutual Insurance Company,
which maintained a self-insured health
plan for its employees, challenged the Ver-
mont statute and regulation and filed suit,
seeking a declaration that ERISA preempts
application of the Vermont law and an
injunction prohibiting Vermont from try-
ing to acquire data about the plan or its
members. Liberty Mutual argued that the
Vermont law was preempted by ERISA
because it was a law that governed, or inter-
fered with, the uniformity of plan admin-
istration and hence had an impermissible
“connection with” ERISA plans. Id. at 943.
The U.S. District Court for the District
of Vermont granted summary judgment
in favor of Vermont, but the Second Cir-
cuit Court of Appeals reversed, holding
that Vermont’s data-collection law was pre-
empted by ERISA. The Second Circuit rea-
soned that the reporting of information
about plan benefits qualified as an essen-
tial ERISA function and should therefore
be sheltered from potentially inconsistent
and burdensome state regulation. Liberty
Mut. Ins. Co. v. Donegan, 746 F.3d 497, 508
(2d Cir. 2014).
The Supreme Court affirmed the Sec-
ond Circuit’s decision and invalidated
Vermont’s statute and regulation. In its
analysis, the Court cited various federal
record-keeping requirements that ERISA
and the U.S. Department of Labor imposed
on ERISA plans and explained that ERISA’s
extensivereporting,disclosure,andrecord-
keeping requirements are central to, and an
essential part of, a uniform plan adminis-
tration system. 136 S. Ct. at 945.
The majority reasoned that Vermont’s
reporting regime, which also attempted
to govern plan reporting, disclosure, and
record keeping and compelled plans to
report detailed information about claims
and plan members, intruded upon “a cen-
tral matter of plan administration” and
“interfere[d] with nationally uniform
administration.” Id. The Supreme Court
majority noted that the implementation
of a number of different state regulations
on record-keeping functions could create
wasteful administrative costs and poten-
tially subject plans to wide-ranging lia-
bility, and therefore, “preemption [was]
necessarytopreventtheStatesfromimpos-
ing novel, inconsistent, and burdensome
reporting requirements on plans.” Id.
Further, the majority rejected Vermont’s
argument that Liberty Mutual had not
shown that Vermont’s reporting regime
had caused it economic loss, reasoning that
“[a] plan need not wait to bring a preemp-
tion claim until confronted with numerous
inconsistent obligations and encumbered
with any ensuing costs.” Id.
Role of Fiduciaries
Many of these record-keeping functions
in ERISA plans are carried out by one
or more “named fiduciaries.” 29 U.S.C.
§1102(c). Named fiduciaries are responsible
for and manage the plans. A fiduciary exer-
cises discretion in plan management, plan
administration, and investment of plan
assets. 29 U.S.C. §1002(21)(A).
With regard to health plans, determin-
ing fiduciary status had been left to the
courts, which emphasized that a fiduciary
was one having the ability to make dis-
cretionary decisions. In Pappas v. Buck
Consultants, Inc., 923 F.2d 531 (7th Cir.
1991), the court distinguished between
non-fiduciary lawyers, accountants, and
actuaries who advise the trustees of a plan,
and the trustees who take the advice and
acts upon it. For example, insurers that pay
or deny claims have been perceived as fidu-
ciaries, while third-party administrators
may or may not be fiduciaries, depending
on their conduct. See Eaton v. D’Amato,
581 F. Supp. 742 (D.D.C. 1980); and Bax-
ter v. C.A. Muer Corp., 941 F. 2d 451 (6th
Cir. 1991).
Yet there is also a
“deemer” clause that
prevents states from
deeming employee welfare
benefit plans to be in
the insurance business,
protecting plans from
the states’ reach.
3. 48 ■ For The Defense ■ August 2016
L I F E , H E A LT H A N D D I S A B I L I T Y
Traditionally, when a court reviewed
the decision of a fiduciary, it would over-
turn or disturb the decision only if the
decision was considered an abuse of dis-
cretion or arbitrary and capricious (simi-
lar to trust law). However, in Firestone Tire
Rubber Company v. Bruch, 109 S. Ct. 948
(1989), the Supreme Court concluded that
this approach was no longer appropriate
and held that the written terms of a plan
must give explicit discretion to a fiduciary
before the courts can defer to the fiducia-
ry’s discretion.
Since Firestone, plans have been revised
to give fiduciaries the explicit right to grant
ordenyhealthbenefitstominimizejudicial
scrutiny. If a plan does not grant discretion
to the administrator to determine benefit
eligibility and interpret plan terms, then
the decision must be reviewed de novo.
See Metro. Life Ins. Co. v. Glenn, 554 U.S.
112, 120 (2008). In a de novo review, the
court does not look to the plan adminis-
trator’s decision, but instead interprets the
plan and reviews evidence itself to decide
the claim for benefits. Id at 112–13. Over
the years, de novo review by the courts has
become rare, and the Court in Glenn reaf-
firmed its approval of the abuse of discre-
tion standard and noted its disapproval of
ad hoc exceptions to deferential review. Id.
After a long and debated regulatory
review process, the United States Depart-
ment of Labor (DOL) on April 6, 2016,
issued final guidance that expands the
definition of a “fiduciary” under ERISA
and the Internal Revenue Code regarding
persons or entities that render investment
advice for compensation, received directly
or indirectly, with respect to assets held in
retirement plans or individual retirement
accounts (IRAs). This rule replaces the
original fiduciary rules that were adopted
in 1975.
The final rule could insert difficulties
into the arrangements that financial advis-
ers have with ERISA-covered plans, in
addition to IRAs, through new fiduciary
duty rules or prohibited transaction rules.
To provide clarity on these relationships
and relief from non-compliance, the DOL
also released the final form of the new best
interest contract exemption (BICE). With
regard to ERISA health plans, the BICE
will continue to allow certain broker-deal-
ers, insurance agents and other vendors
that act as investment fiduciaries to con-
tinue to receive forms of conflicted com-
pensationthatotherwisemaybeprohibited
under ERISA.
While the new rule becomes effective
60 days after it is published in the Federal
Register, the revised definition of fiduciary
advice and the new and amended exemp-
tions do not take complete effect until April
10, 2017. (Current rules remain in effect
until then.) Therefore, plan sponsors have
until that date to begin implementation.
Numerous firms have advised that plan
sponsors should review all of their exist-
ing relationships with service providers to
determine whether those service provid-
ers should be treated as fiduciaries under
the new rule and to identify how they
are compensated, including the financial
carve outs and the BICE. The few activ-
ities in which advisers can engage that
will not make them fiduciaries in the con-
text of ERISA health plans include provid-
ing education and plan information. The
decision to hire or to retain service pro-
viders remains a fiduciary decision, and as
before, plan sponsors have an ongoing duty
to monitor selected advisers.
Fiduciary determination is critical
because section 1132(A)(3)(b) of ERISA,
a “catch-all” provision, gives participants
a potential cause of action for breaches
of fiduciary duty such as regulatory non-
compliance. 29 U.S.C. §1132(a)(3). In this
“catch all,” injunctive and other equitable
remedies are available. Id. This provision
acts as an avenue by which plan partici-
pants may remedy breaches of plan terms
and regulations; it provides participants
with the right to bring a civil action “(A) to
enjoin any act or practice which violates
any provision of this title or the terms of
the plan, or (B) to obtain other appropri-
ate equitable relief (i) to redress such vio-
lations or (ii) to enforce any provisions of
this title or the terms of the plan.” 29 U.S.C.
§1132(a)(3).
This section has been described as a
“safety net, offering appropriate equitable
relief for injuries caused by violations that
other recourse available under ERISA does
not adequately remedy.” Varity Corp. v.
Howe, 516 U.S. 489, 512 (1996). Under this
provision, participants may sue breaching
fiduciaries for traditionally available equi-
table remedies. Calhoon v. Trans World Air-
lines, Inc., 400 F.3d 593, 596 (8th Cir. 2005)
(“Beneficiaries of ERISA plans may sue for
breaches of fiduciary duties under 29 U.S.C.
§1132(a)(3), but the remedies they seek in
such an action are limited by the language
of the statute to traditionally available
equitable remedies.”).
ERISA Health Plans—
Continued Criticisms
While guidance from the DOL on the def-
inition of fiduciary is significant, there
are other criticisms of ERISA health plans
that have yet to be addressed. For example,
in the early days of ERISA, insurers more
often than not paid claims without requir-
ing pre-approval, and they deferred to the
diagnosis and treatment decisions of phy-
sicians. James A. Wooten, The Employee
Retirement Income Security Act of 1974: A
Political History 283 (2004).
However, due to the rising cost of health-
care, insurers now process claims through
utilization review and precertification to
drive the cost back down. Even when a
claimant can show that a clinical recom-
mendation is consistent with professional
clinical standards, the fiduciary may reject
a proposed treatment if it is inconsistent
with other elements of the plan such as rel-
ative cost and efficiency. Sara Rosenbaum
et al., Dep’t of Health and Hum. Serv.,
Medical Necessity in Private Health Plans:
Implications for Behavioral Health Care,
DHHS Pub. No. (SMA) 03-3790 (2003). See
also Black Decker v. Nord, 538 U.S. 822
(2003). Consequently, there has been a rise
in denied benefit claims.
In Black Decker, employee Kenneth
Nord sued Black Decker’s disability plan
While guidance from
the DOL on the definition
of fiduciary is significant,
there are other criticisms
of ERISA health plans that
have yet to be addressed.
4. For The Defense ■ August 2016 ■ 49
under ERISA after he was denied disabil-
ity benefits irrespective of the opinions of
his two treating physicians. The district
court granted a summary judgment in
favor of the plan, and Nord appealed. The
Ninth Circuit Court of Appeals reversed.
The Supreme Court granted certiorari,
reversed, and remanded the decision,
unanimously holding that ERISA does
not adopt the “treating physician rule”
used in the Social Security benefit deter-
mination. Therefore, ERISA plan admin-
istrators are not required to give special
deference to a treating physician’s opin-
ion, nor are plan administrators required
to explain their denials as long as they use
credible evidence.
In 2008, the Fifth Circuit, in review-
ing a plan administrator’s decision for
abuse of discretion, upheld the conclu-
sion of ValueOption, the plan administra-
tor, that a 17-year-old’s intensive inpatient
treatment for serious mental illness and
substance abuse was not medically neces-
sary, despite the treating physician’s opin-
ion. Love v. Dell, Inc., 551 F.3d 333, 337 (5th
Cir. 2008). Although Love acknowledged
that ERISA does not require plan admin-
istrators to prefer the opinions of treating
physicians over those of other physicians
reviewing a file, he called into question the
plan’s criteria in making its determina-
tion, the criteria used in diagnosing him,
and the plan’s procedures throughout the
determination process.
In each case, the court found that Val-
ueOption was “substantially compliant”
with ERISA’s procedural requirements,
and its determination was supported by
substantial evidence in the record. The
court cited Robinson v. Aetna Life Inc.
Co., 443 F. 3d 389, 392–93 (5th Cir. 2006)
(“challenges to ERISA procedures are
evaluated under the substantial compli-
ance standard. This means that ‘technical
non-compliance’ with ERISA procedure
‘will be excused’ so long as the purposes
of section 1133 have been fulfilled.”).
(The DOL regulations provide the mini-
mum guidelines for processing healthcare
claims. 29 U.S.C. §1132(g). ERISA autho-
rizes these regulations and provides that
every employee benefit plan shall give ade-
quate notice of a claim denial and afford
a reasonable opportunity for a full review
of denied claims. 29 U.S.C. §1133. Benefi-
ciaries must exhaust these internal pro-
cesses before filing suit in federal court.
29 C.F.R. 2590.715.)
The “substantial compliance” doctrine
has been criticized because it has the
potential to excuse non-compliance with
regulations. See, e.g., Larson v. Old Domin-
ion Freight Line Inc., 277 F. App’x 318,
321 (4th Cir. 2008) (holding that even if
the administrator’s communications did
not technically comply with the regula-
tions, in that they did not give the basis
for the claim denial, they provided a suf-
ficient understanding of the Administra-
tor’s position and therefore substantially
complied); Wade v. Hewlett Packard Dev.
Co. LP Short Term Disability Plan, 493
F.3d 533, 539–40 (5th Cir. 2007) (excusing
multiple failures to comply with claims
regulations under the substantial com-
pliance doctrine, when the administra-
tor’s oral, rather than written, notice did
not comply, a subsequent denial letter did
not list the plan criteria or reasons for
denial, and it did not specify what infor-
mation the plaintiff should submit to per-
fect an appeal).
As of 2014, ERISA governed most of
America’s non-Medicare healthcare cov-
erage; about 48 percent of the U.S. popu-
lation is insured through their employers.
Health Insurance Coverage of the Total
Population (2014), Kaiser Family Found.,
http://kff.org/other/state-indicator/total-popula-
tion/ (last visited July 7, 2016). With mil-
lions of individuals subject to ERISA, one
of its biggest criticisms is that ERISA actu-
ally may not allow individuals to receive
quality healthcare.
Whereas medical professionals are
legally and ethically obligated to make
treatment recommendations that reflect
the practical application of professional
medical judgment that is appropriate to
an individual patient’s needs, whether a
patient ultimately will receive the care
considered appropriate and necessary by a
treating professional is influenced heavily
by the availability of health insurance cov-
erage to finance the recommended treat-
ments. J. Hadley, Sicker and Poorer—The
ConsequencesofBeingUninsured:AReview
of the Research on the Relationship Between
Health Insurance, Health, Work, Income
and Education, Med. Care Res. Rev. 60 (2d
Supp.) 3S–75S (June 2003).
This is due to the fact that healthcare
professionals consider medical necessity
differently from the way that health plans
consider it when they calculate it. Health
plans emphasize the primacy of the con-
tract as controlling the range of treatments
and procedures that will be considered at
all in a medical necessity determination,
which is reinforced by the Health Insur-
ance Association of America, which states:
“When the provider, rather than the health
plan or insurer interprets the scope of cov-
erage under the contract, health plan fidu-
ciaries cannot guarantee to the insured
that the health care dollars are being spent
fairly and equitably on medical treatments
that are safe, proven and effective.” Rosen-
baum et al., supra.
The definitions of medical necessity in
health plans are broad and ambiguous and
vest insurers with a great deal of discretion
over the treatment of individual patients.
Id. at 4. Once a particular type of treat-
ment is excluded for a specific condition
as a contractual matter, no general find-
ing of medical necessity can override the
exclusion. Id. at 8. Professionally, a fidu-
ciary’s duty is to judge whether a health-
care professional’s treatment is consistent
with the terms of coverage in the contract.
Id. at 14. The task of administering and
managing a package of contractual bene-
fits is to determine what is included in the
benefit package purchased by an employer,
not to determine what the benefit package
In each case, the court
found that ValueOption
was “substantially
compliant” with ERISA’s
procedural requirements,
and its determination was
supported by substantial
evidence in the record.
ERISA, continued on page 86
5. should contain. Id. Within that determina-
tion is the task of ensuring that the levels of
care and treatments provided are appropri-
ate for an enrollee’s need and covered in the
benefit package. Id.
Rosenbaum highlights two cases in
which this is clear: Moscovitch v. Dan-
bury State Hosp., 25 F. Supp. 2d 74 (D.
Conn. 1998), and Lazorko v. Pennsylva-
nia Hosp., 237 F.3d 242 (3d Cir. 2000); both
cases involved suicides by individuals cov-
ered by ERISA health plans. The patients
were ordered to be discharged from treat-
ment after the managed care organiza-
tion concluded that the treatment care
was not medically necessary. Both cases
were permitted to proceed as malpractice
actions after a judicial determination that
the claims in question fell outside the scope
of ERISA because they raised issues of
state law professional liability, rather than
ERISA coverage claims.
One may argue that a solution to the
battle of cost, efficiency, and treatment
would have been to allow states to collect
healthcare price and market data from
self-funded employee benefit plans. Espe-
cially because in 2017, the Patient Pro-
tection and Affordable Care Act of 2010
(PPACA) will make “innovation waiv-
ers” available to states and allow them to
waive many of the law’s requirements and
to develop their own delivery and insur-
ance systems while still receiving the same
level of federal subsidies that would have
gone to each state’s residents. This infor-
mation collection would have brought the
growing problems of increasing health-
care costs, consolidation, health quality,
and price variation to light for all private
and state-funded plans and would have
allowed all the parties’ fiduciaries to bar-
gain for lower prices.
As the healthcare landscape changes
again in 2017 with both the PPACA and the
presidential election, if costs continue to go
up for private ERISA plans, which right-
fully attempt to strike a balance between
medically necessary treatment and effi-
ciency by encroaching upon actual health-
care delivery, at what point will treatment
begin to suffer so much that the original
intent of Congress that ERISA secure “the
continued well-being” no longer be served?
ERISA, from page 49
![For The Defense ■ August 2016 ■ 47
mental health benefit requirement insofar
as it applied to insurers selling insurance
contracts to employee health benefit plans.
Yet there is also a “deemer” clause that
preventsstatesfromdeemingemployeewel-
farebenefitplanstobeintheinsurancebusi-
ness,protectingplansfromthestates’reach.
ERISA,section514(b)(2)(B).BecausetheSu-
preme Court in Metropolitan Life Insurance
Co. v. Massachusetts restricted regulation
under the saving clause to insurance com-
panies and insurance contracts, it follows
that uninsured ERISA benefit plans could
not be regulated by the states. As a result,
ERISApreemptionprovidesconsistentlegal
rightsandremediesforemployeesandtheir
dependents throughout the United States.
Most recently, the Supreme Court, in
Gobeille v. Liberty Mutual Insurance Co.,
reaffirmed the sweeping preemptive effect
of ERISA. In a 6–2 decision written by Jus-
tice Anthony Kennedy, the Gobeille Court
held that state laws that govern plan report-
ing, disclosure, and record keeping were
preempted by ERISA and that preemption
in this situation was “necessary in order to
prevent multiple jurisdictions from impos-
ing differing, or even parallel, regulations,
creating wasteful administrative costs
and threatening to subject plans to wide-
ranging liability.” 136 S. Ct. 936, 939 (2016).
At issue in Gobeille was the validity
of a Vermont statute and regulation that
required health insurers, healthcare pro-
viders, healthcare facilities, and govern-
ment agencies to report any “information
relating to healthcare costs, prices, quality,
utilization, or resources required” to the
Vermont Department of Banking, Insur-
ance, Securities and Health Care Admin-
istration, now called the Department of
Financial Regulation, including data relat-
ing to health insurance claims and enroll-
ment, for compilation in an all-inclusive,
all-payer claims database.
TheVermontstatuteandregulationwere
enacted to help identify healthcare needs
and inform healthcare policy, compare
costs between various treatment settings
and approaches, determine the capac-
ity and distribution of existing resources,
and provide information to purchasers
of healthcare. With this all-inclusive, all-
payer data bank, Vermont expected to be
able to control healthcare outcomes and
costs better.
Liberty Mutual Insurance Company,
which maintained a self-insured health
plan for its employees, challenged the Ver-
mont statute and regulation and filed suit,
seeking a declaration that ERISA preempts
application of the Vermont law and an
injunction prohibiting Vermont from try-
ing to acquire data about the plan or its
members. Liberty Mutual argued that the
Vermont law was preempted by ERISA
because it was a law that governed, or inter-
fered with, the uniformity of plan admin-
istration and hence had an impermissible
“connection with” ERISA plans. Id. at 943.
The U.S. District Court for the District
of Vermont granted summary judgment
in favor of Vermont, but the Second Cir-
cuit Court of Appeals reversed, holding
that Vermont’s data-collection law was pre-
empted by ERISA. The Second Circuit rea-
soned that the reporting of information
about plan benefits qualified as an essen-
tial ERISA function and should therefore
be sheltered from potentially inconsistent
and burdensome state regulation. Liberty
Mut. Ins. Co. v. Donegan, 746 F.3d 497, 508
(2d Cir. 2014).
The Supreme Court affirmed the Sec-
ond Circuit’s decision and invalidated
Vermont’s statute and regulation. In its
analysis, the Court cited various federal
record-keeping requirements that ERISA
and the U.S. Department of Labor imposed
on ERISA plans and explained that ERISA’s
extensivereporting,disclosure,andrecord-
keeping requirements are central to, and an
essential part of, a uniform plan adminis-
tration system. 136 S. Ct. at 945.
The majority reasoned that Vermont’s
reporting regime, which also attempted
to govern plan reporting, disclosure, and
record keeping and compelled plans to
report detailed information about claims
and plan members, intruded upon “a cen-
tral matter of plan administration” and
“interfere[d] with nationally uniform
administration.” Id. The Supreme Court
majority noted that the implementation
of a number of different state regulations
on record-keeping functions could create
wasteful administrative costs and poten-
tially subject plans to wide-ranging lia-
bility, and therefore, “preemption [was]
necessarytopreventtheStatesfromimpos-
ing novel, inconsistent, and burdensome
reporting requirements on plans.” Id.
Further, the majority rejected Vermont’s
argument that Liberty Mutual had not
shown that Vermont’s reporting regime
had caused it economic loss, reasoning that
“[a] plan need not wait to bring a preemp-
tion claim until confronted with numerous
inconsistent obligations and encumbered
with any ensuing costs.” Id.
Role of Fiduciaries
Many of these record-keeping functions
in ERISA plans are carried out by one
or more “named fiduciaries.” 29 U.S.C.
§1102(c). Named fiduciaries are responsible
for and manage the plans. A fiduciary exer-
cises discretion in plan management, plan
administration, and investment of plan
assets. 29 U.S.C. §1002(21)(A).
With regard to health plans, determin-
ing fiduciary status had been left to the
courts, which emphasized that a fiduciary
was one having the ability to make dis-
cretionary decisions. In Pappas v. Buck
Consultants, Inc., 923 F.2d 531 (7th Cir.
1991), the court distinguished between
non-fiduciary lawyers, accountants, and
actuaries who advise the trustees of a plan,
and the trustees who take the advice and
acts upon it. For example, insurers that pay
or deny claims have been perceived as fidu-
ciaries, while third-party administrators
may or may not be fiduciaries, depending
on their conduct. See Eaton v. D’Amato,
581 F. Supp. 742 (D.D.C. 1980); and Bax-
ter v. C.A. Muer Corp., 941 F. 2d 451 (6th
Cir. 1991).
Yet there is also a
“deemer” clause that
prevents states from
deeming employee welfare
benefit plans to be in
the insurance business,
protecting plans from
the states’ reach.](data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7)