NBCH Policy Papers
NAIC Prohibition of Discretionary Clauses In Health Policies
We are writing to express our concerns with the National Association of Insurance Commissioners ("NAIC") proposal to adopt a draft model act entitled "Prohibition On The Use of Discretionary Clauses Model Act" ("Model Act"). We understand that further action on the Model Act is scheduled for the NAIC's 2002 Spring Meeting in March. We urge you to take action to oppose adoption of this Model Act.
Employers voluntarily provide the vast majority of the health benefits for individuals in the private sector. Many of the employers offering health benefits choose to finance and administer their health plans through the purchase of insurance. Without the ability to purchase affordable health insurance coverage, many of these employers may not be able to offer health benefits to their employees.
Discretionary clauses are vital to the ability of employers to control health care costs. The U.S. Supreme Court has held that where an employer gives written discretionary authority to a health plan administrator, a reviewing court must give deference to the administrator's decisions because the administrator acts as a plan fiduciary. The Model Act would prohibit clauses that give such discretion and subject determinations under court review to a de novo standard. The result will be increased litigation, with health plan dollars being spent defending lawsuits instead of providing health benefits to employees.
Further, the Model Act is unnecessary because the existing standard of review is appropriate. Contrary to the language of the Model Act, plan administrators do not have "unfettered discretion" in making benefit determinations. If an employer gives an administrator discretion, that discretion is tempered by ERISA's safeguards that protect plan participants. Under ERISA's requirements, persons making benefit determinations must act as fiduciaries and under U.S. Department of Labor regulations, fiduciaries must comply with strict standards of conduct.
With health insurance costs surging at double-digit rates -threatening health care coverage for millions of working Americans - this is no time to impose new burdens on employers and health plans. Our members cannot afford additional mandates or regulatory restrictions that will result in further health care cost increases. The NAIC's proposed Model Act is bad for business, and bad for employees who depend on affordable, employer-sponsored health benefits.
We appreciate the opportunity to make you aware of our position on this issue.
American Benefits Council
National Association of Manufacturers
National Association of Health Underwriters
National Business Coalition on Health
U.S. Chamber of Commerce
Washington Business Group on Health
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