Ruling on Plan’s Conflict of Interest
July 15 , 2008
An inherent conflict of interest exists in ERISA benefits administration where a
health plan balances competing interests of deciding which claims are reasonable
while at the same time having to pay for those claims. In June, the U.S. Supreme
Court analyzed such a situation and provided benefits and insurance professionals
with helpful guidance in avoiding the appearance of a conflict of interest.
In MetLife v. Glenn, the Supreme Court considered an insurance carrier's
potential conflict of interest when reviewing the carrier’s denial of employee benefits.
In this case, the carrier both determined and paid the benefits for an ERISA-governed
disability plan. The employee’s heart condition initially resulted in “total disability”
payments from MetLife. Later, however, MetLife rescinded benefits when it concluded
Glenn could perform low-stress work.
The issue before the Supreme Court was whether the claim denial should be reviewed
only for arbitrariness and capriciousness, or whether the conflict of interest was
relevant in determining whether MetLife abused its discretion as a Plan Administrator.
The Supreme Court said it was appropriate to consider the conflict of interest.
The Supreme Court acknowledged that a conflict of interest could exist for employers
and any other persons or entities that operate as administrator for any type of
ERISA plan. The Supreme Court noted that there are certain practical steps that
can be taken, including:
- “Walling off” the administrator’s Claims Administration department from its Finance
department
- Imposing management checks that penalize inaccurate decision-making irrespective
of whom the inaccuracy benefits
- Incentives for claims processors based on achieving a certain accuracy rate
- Implementing other controls
When reviewing MetLife’s procedures, the Supreme Court observed very little of the
above steps and also noted that “seemingly inconsistent positions were both financially
advantageous.” It is little surprise, then, that MetLife lost the case.
To review a copy of the 34-page opinion of the case, please go to:
www.supremecourtus.gov/opinions/07pdf/06-923.pdf.