Last year, Maggie Vondras of San Jose found herself in a losing battle with her disability insurer.
The 56-year-old former pharmaceutical saleswoman depends on benefit checks for income because of a severe neck injury. Last October, after a doctor hired by her insurance company reported she was not disabled and it appeared her benefits would be cut off, Vondras asked the California Department of Insurance to intercede.
The Agency refused to get involved and told her to instead call Indiana, where her policy was written.
"They said, ‘If the [insurer] offers you any money, its best to take whatever they offer because it doesn’t look like you have a very good case,’" Vondras said.
When she called Indiana, the reaction was quite different: Regulators in that state got the company to toss out the doctor’s report and agree to keep paying her benefits.
"Had I not pursued it, who knows what would have happened?" Vondras said.
Her case shows how the California Department of Insurance resists taking even simple steps to help claimants fight denials, legal experts said, part of what appears to be a larger shift away from scrutinizing disability insurers.
A spokesman for state Insurance Commissioner Steve Poizner, who is running for governor in 2010, said the case does not shame his agency, but rather shows its success.
"She came for help, we directed her to the right place," said spokesman Darrel Ng. "The consumer was satisfied."
But experts said Poizner should do more than just shuffle cases to other jurisdictions. He should investigate complaints of unfair delays and denials and enforce fines for violations.
A Daily Journal investigation last month revealed that disabled workers who are improperly denied benefits face a long and difficult fight on their own, without the aid of government regulators and in an arena that favors insurers. Hundreds of complaints against the top insurers have not resulted in any probes.
"California citizens should be able to rely on the Department of Insurance to regulate and protect them," said Bryan Liang, executive director at the Institute of Health Law Studies at California Western School of Law. "The department has the power to more strongly regulate the disability insurance market."
Liang and other experts said the department should look into all complaints about disability insurers, launch investigations into claims handling practices, regulate the doctors that insurers hire to support claim denials, and strip insurance policies of unfair clauses that make the cases hard to win in court.
But tougher state regulation would not fix all the problems, sources said. Advocates said federal reform is key to fixing the lack of legal accountability for insurers who control employee benefits, including health insurance.
Disability insurance, which now covers more than a third of the workforce, typically promises to pay two-thirds of workers’ wages if they become too sick or injured to work.
In most cases, when a worker who has paid for disability benefits files a claim, the insurer will review it and pay.
But some cases – markedly those where the insured reports suffering from complex symptoms like chronic pain or long-term injuries of the back, neck and spine – are denied, even if treating physicians and the Social Security Administration find them disabled, the Daily Journal has found.
The result is that workers who believed they had a safety net find themselves fighting for benefits at the same time they are dealing with health problems and medical bills.
One lawmaker, who is running to replace Poizner next year, said the Insurance Commissioner has ignored the power he could wield over these cases.
"The Department of Insurance can and should do more to investigate these denials and to protect disabled policyholders," said State Assemblyman Dave Jones (D-Sacramento).
Jones chairs the state assembly’s health committee. He said he has heard firsthand from disabled Californians who have to battle unfair denials while reeling from health problems.
"It’s a terrible tragedy that the same time we’re having a debate about national health reform, we have a disability insurance system that operates in a way that totally empowers the ability of insurers to deny claims," Jones said.
Hundreds of Complaints
California officials say they do not always have the power to intervene in individual cases, but insist that they don’t turn everyone away.
How often does the department get involved?
It’s impossible to know because the Department of Insurance doesn’t keep track, a spokesman said. Although the agency said it does track how many complaints it receives about disability insurers: roughly 500 each year. Poizner’s office has initiated no major investigations or enforcement actions and has levied only one fine against these insurers since he took office in 2007.
The department denied a public records request from the Daily Journal to review consumer complaints and Poizner declined an interview.
Department officials previously told the Daily Journal they lack the authority to oversee any workplace benefits because of federal law.
Now, however, Ng, the Poizner spokesman, said the department does intervene in some of those types of cases, if it finds that it has jurisdiction through a complicated review of a combination of factors, including where a policyholder lives, where their employer is located, and where the policy was sold.
Ng said the department has not found evidence of a systemic problem in the disability insurance market.
However, a recent Daily Journal investigation found that hundreds of disabled workers were forced to sue to receive benefits and cases often dragged on for years.
Since 2004, at least 576 claims have been filed in federal court against the top seven insurers in California. About 80 percent of those cases settled privately, after the plaintiff waited two years and eight months on average.
When cases reached a judge, they determined in nearly half of the cases that the insurance companies had no basis to deny benefits, records show.
Because federal law does not allow damages, there is no peril for the insurance companies to repeatedly deny legitimate claims. The most the companies will have to pay is the original amount, plus, in some cases, legal fees.
Although state regulators can’t make binding decisions reversing insurers, they can investigate violations and punish the companies, said Brietta Clark, a health law expert at Loyola Law School.
Investigations would give policyholders extra footing in court, Clark said. "The Insurance Commissioner has the tools to create a factual record that could help support legislation to make changes, as well as provide more information for the individual patients challenging denials to introduce into the court record."
Shifting Priorities
California has taken action against some disability insurers under prior administrations, including steps that were intended to level the legal playing field for disabled claimants.
But those consumer protections have languished under Poizner, several sources said.
In 2004, former Insurance Commissioner John Garamendi sued the nation’s largest disability insurer, Unum, accusing it of 25 violations of state law involving unfair claims denials. The insurer agreed to a settlement in 2005 that was supposed to end certain practices.
One loophole Garamendi sought to close was the use of controversial "discretionary clauses" in policies that grant insurers sole authority to decide whether a claim should be paid.
Such clauses have tilted the playing field in federal court to the insurers’ benefit, making plaintiffs prove the denial was not merely wrong but rather "arbitrary or capricious."
Under Garamendi’s watch, disability insurers were told to submit new policies that removed the discretionary clauses or risk having their policies yanked from the market.
Four years later, the department appears to have abandoned that threat. Officials claim 26 insurers, accounting for 80 percent of the market, are voluntarily complying with the requirement, though 19 insurers have yet to have their policies approved.
Trial lawyers who handle the cases said they haven’t yet seen a difference in how cases are handled in court.
Similarly, Poizner announced in January that he would lift a rule that prohibits insurers from reducing disability benefits to account for pensions, workers compensation pay, or wages a person might receive. The department called the rules unnecessary.
One senior attorney who formerly worked at the department on these issues said Poizner has ignored the strongest tools in the state’s regulatory toolbox: investigations and fines.
The attorney, who spoke on the condition of anonymity, said investigations and "market conduct exams" allow the department to scrutinize industry practices and levy large fines for every violation, which can be used to fund the probes.
The department performed one such investigation, which began under Garamendi, resulting in a $600,000 fine in September against a subsidiary of CIGNA.
None of the insurers that the Daily Journal found were most frequently sued over denials – including MetLife Insurance Co. and The Hartford Financial Services Group Inc. – have been targeted, despite hundreds of complaints about disability claims.
‘A Mystery’
Indiana officials said they could not explain why California regulators turned Vondras away.
"Why California couldn’t help is a mystery to me, because if the [insurer] is licensed in California, they would have jurisdiction," said Bettye Foy, chief deputy commissioner for the consumer services division.
Foye said her staff does not intervene in all complaints. But when they do get involved, "it takes a lot to make us give up."
Vondras, who worked for a company selling pharmaceutical products before her injury, said she found the department’s phone number online.
Her claim began four years ago when spinal fusion surgery failed to alleviate migraines and relentless, bone-on-bone pain. Since her job called for her to regularly drive 500 miles a week, her doctors said she was incapable of working.
The insurance company, Philadelphia-based Lincoln National Insurance Co., approved her claim at first, but reconsidered after a physician it picked examined Vondras and said she was fine.
Lincoln National did not return calls for comment.
Deanna Dodd was the Indiana agent who handled her case.
"It was a stalemate," Dodd said. "It was based on a specific physician’s medical exam that said she was no longer disabled."
The insurer kept threatening to terminate her claim even after a Stanford University specialist gave a second opinion that her condition was disabling, Dodd said. So she turned the case over to an attorney in their enforcement division. After three months, Lincoln National agreed to throw out its contracted doctor’s opinion and stop contesting her claim.
Dodd said the case was routine. "That’s what we’re here for," she added.
But Vondras considers herself lucky. Without Indiana’s help, she would probably be fighting the insurance company in court, subsisting on government aid.
"Where was California when I needed protection?" she asked.
Push to Reform Work Benefit Law
Disabled claimants like Maggie Vondras are not the only consumers who face steep challenges when their insurance company balks at paying a claim or denies a treatment.
When insured workers are denied benefits – whether it’s a disability claim or heart surgery – federal law prevents them from suing in state court or seeking any punitive damages.
That’s because a string of court rulings has found that employees covered by group policies are not owed the same legal recourse as those who purchase an individual policy.
Critics said that interpretation of the Employee Retirement Income Security Act has created a glaring loophole affecting most insured Americans. Employer-based health plans cover about 60 percent of the U.S. population by recent estimates.
With lawmakers close to passing a health care overhaul plan, the issue of regulating workplace benefits remains vital because the proposals preserve the current employer-provided system without added legal remedies to patients.
Jamie Court, president of Santa Monica-based Consumer Watchdog, said advocacy groups like his plan to push ERISA reform if health reform includes an insurance mandate.
"Once you tell Americans they have to contribute toward a policy, then the government has an absolute duty to ensure the policy is worth the paper its written on," Court said.
Insurance and business interests have lobbied hard to keep ERISA. A trade group representing Fortune 100 companies, the ERISA Industry Committee, said the law provides uniform regulation across the country and changing it would make benefits too costly and complicated for some employers.
Several key lawmakers, including prominent California Democrats, have explored ways to change ERISA to allow more legal accountability for insurers that deny claims.
However, no legislation has been proposed and no amendments are expected to the current health care overhaul plan.
"It is an outrage that the Democrats who proselytized on the chamber floor for legal justice for people under ERISA have forgotten that cause," Court said, noting that until 2001 many Democrats, including Massachusetts Senator Ted Kennedy, pushed ERISA reform.
Plaintiffs’ lawyers hold special contempt for the law.
"ERISA really is a license to kill," said Scott Glovsky, a Pasadena attorney for policyholders. "It allows the health plans to deny whatever they want to deny, knowing that their policyholders have virtually no recourse."
Glovsky said he turns down ERISA cases because of the severe limitations on bringing a case to trial and recovering damages.
The irony is that Congress originally passed ERISA in 1974 to protect American workers by instituting minimum funding requirements so pension funds would not leave workers high and dry.
Lawyers like Glenn Kantor, whose Northridge firm represents hundreds of policyholders in ERISA cases, said a 1987 U.S. Supreme Court ruling badly misinterpreted the original intent of making employee benefits a federal issue.
"They took a right and turned it into a binding appeals process," Kantor said.
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