Out-of-network liability must be clear to enrollees

May 1, 2010

Insurers should consider greater transparency regarding the calculation of out-of-network reimbursements and insureds' potential liability for excess charges.

In a case filed last year, an insured brought a class action against Health Care Service Corporation, the parent company to the administrator of the plaintiff's employer's ERISA group health plan. The class action alleges that the plan administrator breached its obligation to the plaintiff and others by systematically underpaying for out-of-network services (in part due to the Ingenix database), failing to disclose the basis for out-of-network reimbursement rates, and leaving the insureds personally responsible for a greater share of the costs for those services.

However, this shield has been subject to increasing attack. The recent healthcare legislation also may lead to an increase in insureds outside of the traditional confines of ERISA altogether. Several states recently have enacted bans or other limits on discretionary clauses, including California, Illinois, Michigan, New Jersey, and New York, and still others are considering such limits.

These bans have been subject to court challenges, which have mostly gone in favor of the states. Without discretionary clauses, administrators' decisions could be subject to a "fresh look" and complete re-review by courts, which may not bode well for insurers in the insured versus insurer context.

BALANCING INFORMATION NEEDS

As insureds become more proactive in healthcare decisions, it would not be surprising to see an increase in the use of out-of-network providers. With simultaneous limits on the ability of insurers/administrators to seek protection under ERISA, lawsuits may portend a disturbing trend for insurers and present a challenge regarding how best to inform insureds about the scope of out-of-network benefits, while protecting the proprietary nature of reimbursement rates.

Insurers should consider greater transparency in plan materials regarding the calculation of out-of-network reimbursements and insureds' potential liability for excess charges. Further, a thorough paper trail and upfront disclosures may be more valuable when faced with a court's re-review.

Christopher Williams is a partner with Calfee, Halter & Griswold LLP.

Laura McBride is an associate with Calfee, Halter & Griswold LLP.