ERISA - THE ESSENCE OF THE FRAUD
Under ERISA Insurance Companies can get away with failing to deliver on their promises
By: Michael A. McKuin
Revised: November 2014
"Advertising is to a genuine article what manure is to land, - it largely increases the product."
This is not intended as a serious, scholarly exercise, but allow me to start with a simple hypothetical, coupled with a philosophical query. (Lawyers are really big on hypotheticals and philosophy). Let's say that the Chairman of the Board of the ABC Insurance Co. has just named me as its new CEO. It seems ABC's profits have been slumping lately and the Chairman, (whom I met in a bar a week ago) thinks I'm just the guy to turn things around and put smiles on the faces of dividend-hungry shareholders.
I ponder the situation for about 20 minutes and I come up with a plan. I decide that ABC will offer a new type of insurance policy to the general public that will provide the following medical and disability benefits: "NONE". That's right; I said "NONE" -- No benefits. Nada. Zilch. (Put aside, for the moment any state consumer laws that may require ABC to actually provide some minimal level of benefits). Under my new policy, ABC will not pay anything of any kind to anybody – EVER. And the policy will clearly state that fact on the outside cover in large boldface type so that no one could miss it. The policy will make for easy reading – about a half a page should do the trick.
In order to make my new policy as widely available on the market as possible, I tell my Chief Underwriter that absolutely no one is to be turned down for coverage. As long as they can fill out a 2-line application and hand over a check, they're covered. Then I tell my Director of Marketing to sell this policy to the public for a base premium of $1,200 per year per person -- That's a simple $100 a month payroll deduction for the participant. Nothing could be easier. I'll even throw in dependent medical coverage for an extra $25 a month.
During open enrollment at your place of employment, you will be given the opportunity to sign up with my new plan if you choose. And, of course, you may select any number of other competing plans that actually do provide some benefits, if you want. Or you may opt to join no plan at all -- It is, after all, a free country.
Just so there's no misunderstanding, let me sum this up. If you sign up with my plan, I'm going to take your money and give you nothing in return, except a worthless one-page policy. That’s what you get for your $1,200 a year. You get absolutely nothing. If you should become sick or disabled under my plan, you will in all probability exhaust your life savings, lose your house in foreclosure and your car will be repossessed. You may even end up living on the street. Or you may die. And I am telling you all of this right up front.
Now I ask you, is that fair? Well, of course it is. You bet it’s fair. It’s as fair as fair can be. I haven't defrauded you. I didn’t lie to you or take your money under false pretenses. I told you from the beginning that I was going to take your money and give you nothing in return of any value. What more do you want from me? Assuming you’re at least 18 years old and of sound mind, if I give you all the facts right up front and you knowingly, willingly and voluntarily agree to hand over your money, then what is wrong with that? Of course if you do, you’re a complete idiot, but I can’t be held responsible for your shortcomings. From a moral standpoint, you might say that if I did such a thing, I'm a scoundrel. Oh well, nobody's perfect. Caveat emptor (let the buyer beware). That’s the name of the game in the American free enterprise system and I have absolutely no problem with it.
Now let's change this silly hypothetical just a little. Say I'm still the CEO of the ABC Insurance Co. But as it turns out, I'm not having much success selling my worthless one-page "no-benefits" policy. The public's a lot more sophisticated than I thought and there just aren't enough suckers out there to make it worth my time. So, I decide that if I'm going to succeed in the insurance game, I am going to have to compete with those other companies out there, who actually do promise benefits for your premium dollar. OK, I'm an adaptable kind of guy, so I change my policy. I re-write it so that the policy now promises all kinds of benefits. It goes on for more than 30 pages, promising to pay 80% of any major medical expenses you incur. It also promises that if you become totally disabled and unable to work, ABC will pay you 75% of your pre-disability income.
I offer to sell this policy to you for the same $1,200 as before. You sign up for my new policy and walk away happy – satisfied that if you become sick or disabled you and your family will be protected. But let me make something clear here. In my altered hypothetical, nothing has changed, except that I've made a promise. I'm still the same scoundrel I always was and I still have no intention of actually paying you anything, ever, under any circumstance. As I said, my goal is to restore profitability to ABC and I certainly can’t accomplish that if I really paid claims. Therefore, if you submit a medical claim, I'll deny it, saying that whatever medical treatment you underwent wasn't "medically necessary". If you submit a long term disability claim, I’ll deny it, saying that you are obviously capable of working at some job somewhere. The only way I will ever pay your claim, is if you get a court judgment against me. Even then, I'll have my lawyers drag your case out for as long as I can. With any luck at all, in a state of financial desperation, you'll commit suicide before your case goes to court and my shareholders will be rid of you once and for all. If not, and if all else fails, I’ll try to negotiate with you to take 10 cents on a dollar. And maybe I’ll get lucky and settle up for half of what I owe you.
So again, I pose to you the question: "Is this fair?" Of course it isn't. It isn’t fair because I lied to you. And to steal a line from Wilfred Brimley in the movie Absence of Malice, "It ain't legal. And worse than that, by God, it ain't right." And in the old days, before ERISA pre-empted state law remedies, if an insurance company ever did such a thing, you could sue it for breach of contract, fraud, and "bad faith". You might even recover punitive damages, far in excess of the amount of your claim. Well, not anymore. Thanks to ERISA, your insurance company can legally steal your money by taking your premium dollars and refusing to pay your legitimate claims. That is the very essence of the scam that is ERISA -- and there is very little you alone can do about it. If your claim is denied, you will need help – and the sooner you get it the better will be the likely result.
ERISA Disability Lawyer