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SOCIAL SCIENCE RESEARCH NETWORK
EMPLOYEE BENEFITS, COMPENSATION & PENSION LAW ABSTRACTS
Sponsored by Pension Governance, LLC
Vol. 8, No. 39: November 8, 2007
Editor: PAMELA J. PERUN
Policy Director, Aspen Institute - Initiative on
Financial Security
PAMELA@PLANETNOW.COM
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Topic of This Issue:
ERISA and Health
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T A B L E O F C O N T E N T S
"Trust Law as Regulatory Law: The Unum/Provident Scandal and
Judicial Review of Benefit Denials Under ERISA"
JOHN H. LANGBEIN
Yale University - Law School
"ERISA Preemption and Fair Share Legislation"
SHARON REECE
University of Maryland - School of Law
"ERISA Pre-emption and Health Care Reform: A History Lesson"
MICHAEL S. GORDON
Author - Deceased
"Governor Schwarzenegger's Proposal for Univeral Health Care: A
Policy-Based and Legal Analysis"
JAMES W. KIM
Affiliation Unknown
"The Massachusetts Health Plan: The Good, the Bad, and the Ugly"
DAVID A. HYMAN
University of Illinois College of Law
"The Health Care Choice Act: The Individual Insurance Market and
the Politics of 'Choice'"
ELIZABETH A. PENDO
St. Thomas University, Miami, FL - School of Law, Saint
Louis University - School of Law
"Taxing the Disabled: The IRS, the Insurance Industry, and the
Disability Waiver of Premium Rider"
ANDREW STRELKA
Washington College of Law
"Fiduciary Constraints: Correlating Obligation With Liability"
DANA M. MUIR
University of Michigan - Stephen M. Ross School of
Business
CINDY A. SCHIPANI
University of Michigan - Stephen M. Ross School of
Business
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"Trust Law as Regulatory Law: The Unum/Provident Scandal and
Judicial Review of Benefit Denials Under ERISA"
Yale Law & Economics Research Paper No. 329
Yale Law School, Public Law Working Paper No. 127
Northwestern University Law Review, Vol. 101, p. 1315,
2007
Contact: JOHN H. LANGBEIN
Yale University - Law School
Email: john.langbein@yale.edu
Auth-Page: http://ssrn.com/author=169038
Full Text: http://ssrn.com/abstract=917610
ABSTRACT: When the participant in an ERISA-covered employee
benefit plan seeks judicial review of the plan administrator's
decision to deny a claimed benefit, should the standard of review
be deferential, effectively presuming the correctness of the
denial, or should the court examine the merits afresh, applying
so-called de novo review? In the prominent ERISA case of
Firestone Tire & Rubber Co. v. Bruch (1989), the Supreme Court
held that, on account of ERISA's protective purpose, the standard
of review should be de novo. However, in an ill-considered aside,
the Court assumed (and thus effectively decided) that the
employer could alter that standard by inserting terms in the plan
requiring deferential review. Even though resolving benefit
claims is a fiduciary function under ERISA, and even though plan
administrators are commonly officers of the employer (or its
insurer) who have a financial interest in denying claims, ERISA
plans now routinely require deferential review, and courts
routinely obey.
A major scandal in claims administration has come to light in
recent years that underscores how dangerous it has been to allow
ERISA plans to skew the standard of review towards self-serving
decisionmakers. Regulatory authorities and courts have now
established that Unum/Provident Corporation, the nation's largest
disability insurance carrier, was engaged in a program of
deliberate bad faith denial of meritorious claims in both ERISA
and non-ERISA markets. This article reviews these events.
The Unum/Provident saga shows convincingly that the Supreme Court
underestimated the danger of allowing ERISA plan sponsors to
require judicial deference to conflicted plan decisionmakers.
This article refutes a line of Seventh Circuit ERISA cases that
deprecates the dangers of conflicted plan decisionmaking on
supposed law-and-economics principles. The article contrasts a
strand of Eleventh Circuit authority that has been able to reduce
the harm.
A main theme of this article is that the Supreme Court's misstep
in Bruch was premised on a misunderstanding about how trust law
bears on ERISA. The Court reasoned that because ERISA is rooted
in trust law, and trust law allows the settlor to alter the
standard of review, ERISA should allow similar latitude to
benefit plan sponsors. That syllogism is flawed. The law of
trusts is prevailingly a branch of the law of gifts, which
aspires to maximize the donative autonomy of the settlor who
creates the trust. In ERISA, by contrast, Congress drew upon
trust law principles in support of a regulatory purpose,
restricting the autonomy of plan sponsors in order to protect
plan participants. Trust law rules that conflict with ERISA's
regulatory purpose ought not to be transposed to ERISA. A variety
of provisions of ERISA are shown to provide textual support for
this view.
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"ERISA Preemption and Fair Share Legislation"
U of Maryland Legal Studies Research Paper No. 2007-23
Contact: SHARON REECE
University of Maryland - School of Law
Email: sreece@law.umaryland.edu
Auth-Page: http://ssrn.com/author=625202
Full Text: http://ssrn.com/abstract=1006026
ABSTRACT: This paper addresses the issues states face in creating
healthcare initiatives for their citizens. The preemption
provisions of ERISA have presented a formidable obstacle to the
implementation of these laws. The paper offers some alternatives
and proposals which could possibly minimize the effect of
preemption.
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"ERISA Pre-emption and Health Care Reform: A History Lesson"
EBRI Notes, Vol. 28, No. 5, May 2007
Author: MICHAEL S. GORDON
Author - Deceased
Auth-Page: http://ssrn.com/author=818529
Full Text: http://ssrn.com/abstract=988412
ABSTRACT: This paper was originally published in EBRI Issue Brief
No. 135, March 1993, during the last major debate on health care
reform. It was based on a speech delivered by Michael S. Gordon
before the George Washington University National Health Policy
Forum's conference on "The Role of Federal Standards in Health
Systems Reform: How Much Leash Should ERISA Give the States?"
held November 18, 1992. Gordon, now deceased, served under the
late Sen. Jacob Javits (R-NY) from 1970-1975 as minority counsel
for pensions on the Senate Labor and Public Welfare Committee and
assisted in the drafting and enactment of the Employee Retirement
Income Security Act (ERISA). Now that the issue of national
health care reform has been revived as a topic of debate on
Capitol Hill - and along with it the issue of ERISA pre-emption
of state health insurance regulation - the Employee Benefit
Research Institute is reprinting Gordon's article. Now, as then,
his observations provide both historical and fresh perspective on
the conflicts over ERISA and federal pre-emption.
The complete original publication, "Health Care Reform: Managed
Competition and Beyond," EBRI Issue Brief No. 135, March 1993, is
available online.
The PDF for the above title, published in the May 2007 issue of
EBRI Notes, also contains the fulltext of another May 2007 EBRI
Notes article abstracted on SSRN: "Income of the Elderly
Population Age 65 and Over, 2005."
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"Governor Schwarzenegger's Proposal for Univeral Health Care: A
Policy-Based and Legal Analysis"
Health Lawyer, Vol. 19, No. 5, April 2007
Contact: JAMES W. KIM
Affiliation Unknown
Email: jameswaynekim@gmail.com
Auth-Page: http://ssrn.com/author=722130
Full Text: http://ssrn.com/abstract=981534
ABSTRACT: On January 8, 2007, Governor Arnold Schwarzenegger
unveiled his comprehensive proposal to provide health insurance
to all residents of California. This article analyzes the major
objectives and elements of the Proposal, some potential flaws in
the underlying cost estimates on which the Proposal is based, and
its financial impact upon various stakeholders.
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"The Massachusetts Health Plan: The Good, the Bad, and the Ugly"
Cato Institute Policy Analysis Paper No. 595
Contact: DAVID A. HYMAN
University of Illinois College of Law
Email: dhyman@law.uiuc.edu
Auth-Page: http://ssrn.com/author=141378
Full Text: http://ssrn.com/abstract=1019554
ABSTRACT: In spring 2006, Massachusetts enacted legislation to
ensure universal health insurance coverage to all residents. The
legislation was a hybrid of ideas from across the political
spectrum, promoted by a moderately conservative Republican
governor with national political aspirations, and passed by a
liberal Democratic state House and Senate. Groups from across the
political spectrum supported the plan, from the Heritage
Foundation on the right to Families USA on the left, although the
plan had detractors from across the political spectrum as well.
This study briefly describes the basic structure of the
Massachusetts plan and identifies the good, the bad, and the
ugly. Although the legislation, as Stuart Altman put it, is not a
typical Massachusetts-Taxachusetts, oh-just-crazy-liberal plan,
there is enough bad and ugly in the mix to raise serious
concerns, particularly when the desire to overregulate the health
insurance market appears to be hard?wired into Massachusetts
policymakers' DNA.
If we want to make health insurance more affordable and avoid the
bad and the ugly of the Massachusetts plan, Congress - or,
barring that, individual states - should consider a regulatory
federalism approach. Under such an approach, insurers and
insurance purchasers would be required to subject themselves to
the laws and regulations of a single state but allowed to select
the state. As with corporate charters, this system would allow
employers and insurers to select the regulatory regime that most
efficiently and cost?effectively matches the needs of their risk
pools. The ability of purchasers and insurers to exit from the
state's regulatory oversight (taking their premium taxes with
them) would temper opportunistic behavior by legislators and
regulators, including the temptation to impose inefficient
mandates and otherwise overregulate.
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"The Health Care Choice Act: The Individual Insurance Market and
the Politics of 'Choice'"
Western New England Law Review, Vol. 29, p. 473, 2007
Contact: ELIZABETH A. PENDO
St. Thomas University, Miami, FL - School of Law,
Saint Louis University - School of Law
Email: ependo@stu.edu
Auth-Page: http://ssrn.com/author=98651
Full Text: http://ssrn.com/abstract=1017994
ABSTRACT: Traditionally, employer-sponsored group insurance plans
have been the backbone of health insurance coverage in the United
States. While it is still true that most Americans get their
health insurance through their employment, the erosion of
employer-sponsored health insurance has increased the ranks of
the uninsured and pushed more workers, retirees and their
families into the individual insurance market. In 2005, for
example, nine percent of the population, or nearly 27 million
people, turned to individual policies for health insurance
coverage.
The Health Care Choice Act of 2005 (the ?Act?) currently before
Congress aims to reform perceived problems in the individual
market, and is touted as part of the solution to the problem of
the uninsured. It purports to allow individuals who are not
eligible for or cannot afford group coverage to purchase an
individual policy in and from any state. If passed, the Act would
allow health insurers to offer individual policies of insurance
from any state without being required to comply with the laws of
the insured's state. Its proponents claim that it would lower the
cost of individual health insurance by bypassing state laws such
as those mandating benefits, and offer consumers more choice.
It does not appear that the Act would lower costs for most
purchasers, increase meaningful choices, or reduce the overall
number of uninsured. Moreover, the Act would permit health
insurers to sell policies from the states with the fewest
consumer protections, and to market and sell those policies to
consumers in all other states. This would erode important
consumer protections under state law and undercut the role of the
states in regulating health insurance products and protecting
their citizens. Worse, the Act could increase the existing
problem of fragmentation in the individual and broader insurance
markets and divert attention away from systemic issues such as
the increasingly high cost of health care, and the growing crisis
of un- and under-insurance. Indeed, the Act can be seen as an
example of the larger political approach to health care policy,
one focused on individual, market-based solutions that undermine
the concept of health insurance as an expression of social
solidarity and collective responsibility.
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"Taxing the Disabled: The IRS, the Insurance Industry, and the
Disability Waiver of Premium Rider"
Richmond Journal of Law and the Public Interest, Vol. 10, p.
53, 2007
Contact: ANDREW STRELKA
Washington College of Law
Email: Andrew.Strelka@american.edu
Auth-Page: http://ssrn.com/author=799326
Full Text: http://ssrn.com/abstract=982007
ABSTRACT: This article discusses the current tax methods being
applied to the disability waiver of premium rider, an optional
addition to life insurance policies that waives subsequent annual
premiums in the event the insured becomes disabled. The article
shows that the seminal case regarding the taxation of disability
waiver of premium riders, Estate of Wong Wing Non v.
Commissioner, has been misconstrued by both the IRS and the
insurance industry. This has allowed for the existence of two
scenarios where a disabled policyholder is subjected to an
unexpected tax liability that would have been avoided but for the
onset of disability. The correct holding from Wong Wing Non is
analyzed and constructed: waived premiums constitute a
constructively received disability benefit that should be
excluded from taxation under subsection 104 of the Code. Model
legislation is also proposed as an alternative to a subsequent
judicial challenge to Wong Wing Non.
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"Fiduciary Constraints: Correlating Obligation With Liability"
Wake Forest Law Review, Forthcoming
Ross School of Business Paper No. 1075
Contact: DANA M. MUIR
University of Michigan - Stephen M. Ross School of
Business
Email: DMUIR@UMICH.EDU
Auth-Page: http://ssrn.com/author=98248
Co-Author: CINDY A. SCHIPANI
University of Michigan - Stephen M. Ross School of
Business
Email: schipani@umich.edu
Auth-Page: http://ssrn.com/author=98249
Full Text: http://ssrn.com/abstract=985313
ABSTRACT: State law seems to be ratcheting up the scrutiny of
corporate behavior including the behavior of officers and
executives. In this article we consider the issues that are
likely to arise as officer conduct is scrutinized more closely
using state corporate fiduciary principles. The challenge is not
so much one of ensuring that fiduciary principles govern the
conduct of corporate actors as it is correlating obligation with
potential liability. We find in this paper that ERISA is helpful
in anticipating the issues that state corporate law will confront
in its increasing focus on officer liability. We look to ERISA to
identify issues expected to arise as a result of the growing
state law emphasis on individual liability and to consider
alternative approaches to address those issues.
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