Prohibit ERISA discretionary clauses
Recommendation
Congress should amend the Employee Retirement Income Security Act (ERISA), which governs private-sector employer-sponsored coverage for more than 130 million Americans, to prohibit ERISA plans from inserting “discretionary clauses” into plan policies. Such clauses stack the deck against consumers by requiring an extraordinarily high burden of proof for plan members to receive promised benefits.
Background/summary
Many ERISA plans use discretionary clauses to avoid liability for improperly denying benefits, particularly for mental health and substance use disorders. By inserting “discretionary clauses” into their plan policies, ERISA plans permit themselves to interpret the meaning of the terms of the policies they administer and the facts they consider when adjudicating benefits under these policies. Where these clauses are allowed, courts must broadly defer to insurers’ coverage determinations. Under the deferential standard of review, courts only reverse benefit denials found to be “arbitrary and capricious,” even if the court believes the plan has made an incorrect determination.
This problematic higher burden of proof has imperiled the landmark federal court case Wit v. United Behavioral Health (UBH), an ERISA case recognized nationwide as a landmark case for mental health.[1] Nationally, there is a clear movement by states regulating fully-insured ERISA plans to ban discretionary clauses. In fact, the National Association of Insurance Commissioners (NAIC) has adopted a model law entitled the “Prohibition on the Use of Discretionary Clauses Model Act.” The NAIC describes the purpose of the model act to prohibit discretionary clauses “to assure that health insurance benefits and disability income protection coverage are contractually guaranteed, and to avoid the conflict of interest that occurs when the carrier responsible for providing benefits has discretionary authority to decide when benefits are due.”[2] Nearly half of states have now banned these clauses.
Where the clauses are allowed to stand, patients are at a terrible disadvantage in challenging wrongful denials of health care coverage. Federal Circuit Courts have articulated the unfairness that can result from applying a discretionary review in benefits cases, while various federal trial courts have noted that the standard of review in benefits matters is determinative and that the abuse of discretion standards of review permits incorrect outcomes.
The Mental Health Matters Act (H.R. 7780), which included language to ban discretionary clauses, passed the U.S. House in 2022.[3]
citations
1. The Kennedy Forum. Wit v. United Behavioral Health. Last Updated March 2023.
2. National Association of Insurance Commissioners. Prohibition On The Use Of Discretionary Clauses Model Act. Last Updated January 2006.
3. Mental Health Matters Act. H. R. 7780 (DeSaulnier-Scott), 117th Congress (2022-2023). Last Accessed July 31, 2023.