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Texas consumer advocate wants ban on health insurers' blanket clauses

Texas consumer advocate wants ban on health insurers' blanket clauses

By TERRENCE STUTZ / The Dallas Morning News

AUSTIN - The state's insurance consumer advocate is seeking to eliminate the blanket authority of health and disability insurers to decide what their policies cover, a shift that could have a major impact on health insurance in Texas.

Public Insurance Counsel Deeia Beck has asked the state's insurance commissioner to end long-standing provisions in most health plans, called "discretionary" clauses, that give insurers the right to interpret their policies and decide what benefits must be paid.

"Consumers are now at the mercy of health insurers," Beck said.

The health insurance industry strongly opposes such a change. Insurance Commissioner Mike Geeslin has held a hearing on the proposal and is considering whether to move forward.

Twenty-two states have banned the practice, either through state law or new regulations. The National Association of Insurance Commissioners has recommended to its members that the practice be stopped.

"It's hard to defend giving insurance companies this kind of authority, where they have full discretion to interpret ambiguities in their policies," Beck said Wednesday. "No one disputes that an insurance carrier has the first right to make a determination on their claims. But there is a problem in how those decisions are reviewed and whether companies should be allowed to resolve all ambiguities in their favor."

Beck said disagreements typically arise over cancer drugs, mental illness coverage and home-based diabetes treatment. But insurers have the final say, and costs often figure into their decisions.

"Typically, they hire their own in-house physicians or they contract with physicians - who are paid by the insurance carrier - to review the medical records and make a judgment on whether a claim should be paid. It is an inherently unfair process," she said.

Consumers unhappy with their insurer's decision can go to court. But to overturn a decision, the consumer must prove the insurer acted unreasonably, a legal standard that strongly favors the insurer in most cases.

That requirement stacks the deck in favor of insurance companies and allows them to reject claims without worry, Beck said.

Eliminating discretionary clauses will remove that advantage and force insurers to be even-handed in deciding whether to pay medical and disability claims, she added.

A spokeswoman for the health insurance industry took issue with Beck's arguments, contending that dropping the clauses from policies would be a serious mistake that would harm consumers.

"It would lead to more litigation, higher costs for insurance and not be in the best interests of consumers," said Jennifer Ahrens Cawley, executive director of the Texas Association of Life and Health Insurers, which has urged Geeslin to reject the proposal.

"More lawsuits will increase the cost of health plans," she added. "And it is medium and small-sized employers who will bear the brunt of those higher costs in their plans and who may be forced to offer reduced benefits or no benefits at all."

Cawley said insurers already fall under government regulations, fiduciary rules and court precedents that require consumer protections.

"The obligation is already there for the insurer to make these benefit determinations in a uniform, nonarbitrary fashion," she said.

She dismissed the decisions of other states to ban discretionary clauses, saying, "Texas has always demonstrated a strong sense of consumer protection" in its insurance laws, such as requiring prompt payment of claims by insurance companies.

There are no independent studies on what has happened to insurance rates in those states, but an industry-funded study estimated that removal of discretionary authority for insurers will ultimately cause a 3 percent to 4 percent spike in premiums.

Ben Gonzalez, a spokesman for the Department of Insurance, said the commissioner has a Dec. 28 deadline to decide whether the agency will start writing rules to limit or ban discretionary clauses. If Geeslin opts not to begin rule-making, insurers will retain their unrestricted right to determine benefits.

Consumer advocates see Geeslin, an appointee of Republican Gov. Rick Perry, as leaning toward the industry in his decisions. Health care and insurance, including car and homeowners, are expected to be major topics in next year's state campaigns.

Some states have addressed the discretion issue by requiring independent, third-party reviews of benefits disputes. Although Geeslin could take similar action in Texas, he is not expected to do so even if he strips insurers of their blanket authority to decide what claims are covered.

Several legislators, including Sen. Rodney Ellis, D-Houston, and Rep. Mark Shelton, R-Fort Worth, are backing Beck's recommendation, according to officials in Beck's office.

Beck's office produced examples of the provisions that are included in health insurance policies sold in Texas. One states: "The company has sole authority to manage this policy, to administer claims, to interpret policy provisions and to resolve questions arising under this policy. Any decision the company make in the exercise of its authority shall be conclusive and binding."

Another reads: "Benefits under this plan will be paid only if the plan administrator or its designee decides in its discretion that the applicant is entitled to them."

Beck has received strong support from leading consumer groups, including AARP and Texas Watch.

"Many of our members are worried about their insurance coverage being there when they need it," said Tim Morstad of AARP.

"In the last decade or so there has been a dramatic increase in the number of cases where individuals have been denied claims under these provisions," he said.

Morstad said it can be frustrating for consumers who have a hard time finding out exactly why they were turned down by their insurer. And their chances for success in a lawsuit are slim because of the favorable legal position that insurers hold.

Earlier this month, a federal appeals court upheld a Montana law barring insurers from using discretionary clauses in their insurance policies. The law had been challenged by leading insurance companies.

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