Are Health Insurance Bad Faith Cases Making A Comeback?
Note: This article will appear in the October 2014 edition of the PAJustice News
Bad faith cases against health insurance companies have been pretty rare – in fact almost non-existent – for several years.
For a period in the early 2000s, it appeared that civil juries might provide a significant and necessary check on the power of managed care companies, as juries returned a series of substantial verdicts against health insurance companies that had wrongfully denied care. But a series of decisions from the United States Courts of Appeals and the United States Supreme Court firmly established the proposition that whenever one has health insurance coverage through their employer, claims for compensatory and punitive damages are almost invariably foreclosed by the Employee Retirement Income Security Act of 1974 (“ERISA”). This rule applies no matter how outrageous the managed care company’s misconduct, and no matter how grievous the injury. While there are exceptions to the scope of ERISA – most notably individual plans and government plans – the overwhelming majority of Americans receive health insurance coverage through employers (either their own or a family member’s), and ERISA preemption forecloses any meaningful relief. After these preemption decisions, bad faith cases against health insurance companies almost entirely disappeared from the Pennsylvania landscape.
The Affordable Care Act is changing that. Many Pennsylvania citizens are purchasing health insurance policies through the federal health insurance marketplace – 318,000 as of last count, and almost certainly growing. These policies are not subject to ERISA preemption because they are not obtained through employment. This is an important development for anyone who believes that ordinary citizens should have full access to the courts, and for anyone who believes that corporate entities entrusted with the lives and the health of Pennsylvania families should have the same rights and responsibilities as anyone else, without special protections or special treatment.
At the same time, health insurance companies are required to comply with a number of patient protection requirements that are part of, or incorporated into, the ACA. For example, virtually all health plans are now required to comply with the Mental Health Parity and Addiction Equity Act of 2008, a law that bars discrimination against those with behavioral health conditions and substance use disorders. The ACA also requires health insurance plans to comply with detailed rules regarding internal and external appeals. The managed care industry’s compliance with these legal requirements has been, on the whole, grudging and incomplete. Because violations of legal and regulatory requirements are evidence of bad faith (if not bad faith in their own right), the possible availability of a bad faith remedy needs to be considered any time a managed care company has failed to follow these requirements.
Medicaid expansion could further expand the number of Pennsylvanians who have health insurance that is not subject to ERISA preemption, because Governor Corbett’s plan for Medicaid expansion is built around private health insurance for many newly eligible Medicaid participants. That health insurance will not be subject to ERISA preemption.
Health insurance bad faith cases will always be challenging, because a plaintiff has to both win a malpractice case and prevail in the procedurally complicated area of health insurance law. And there are legal hurdles separate and apart from ERISA, including the Superior Court’s decision in DiGregorio v. Keystone Health Plan East, 840 A.2d 361 (Pa. Super. 2003), which stated (erroneously in my view) that bad faith cases against HMO’s are preempted by the HMO Act, 40 Pa. Stat. § 15601 But DiGregorio immunity does not apply to PPO’s, does not apply to common law causes of action, and does not apply to the carve-out behavioral health contractors that often control the care of the most vulnerable patients. On the whole these challenges are not in the same league as the categorical pall that ERISA used to cast over almost all of these cases.
These cases can be worth pursuing. Every juror understands that we will all, in one way or another, be at the mercy of a managed care company at some point in our lives, and juries are ready to tell these powerful businesses just what someone’s life and health are worth in Pennsylvania. Keep your eyes open.
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1. The decision is incorrect because the HMO Act leaves intact laws that specifically apply to HMO’s, and the law creating a bad faith cause of action, Act 6 of 1990, codified at, inter alia, 42 Pa. Cons. Stat. Ann. § 8371, does expressly apply to HMO’s. See, e.g., 75 Pa. Cons. Stat. Ann. § 1720 (Section 9 of Act 6 of 1990). But until the Supreme Court fixes this, the Superior Court’s DiGregorio decision is a fact of life for the bad faith practitioner.