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Insurable Interests - Insights on Insurance Law

Peterson v. United HealthCare decision illustrates limits on discretion of plan administrators’ when interpreting plan terms

Court RoomIn a widely-anticipated decision, the U.S. Court of Appeals for the Eighth Circuit recently held that United HealthCare violated its customers’ plan provisions when it engaged in the practice of “cross-plan offsetting.” Peterson et al. v. UnitedHealth Group, Inc., et al., Eighth Circuit Appeal No. 17-1744 (January 15, 2019).

Background

This practice, instituted by United HealthCare in 2007, involved a procedure in which it reduced or eliminated claim payments made to out-of-network providers to make up for overpayments to those providers on different claims – even if the claims were submitted for different health care plans.

The holding that this practice was improper is hardly surprising. No plan expressly authorized the practice and no provision of ERISA even remotely condones it. Given that the main job of a plan administrator is to interpret plan terms and apply them to claims submitted for payment, United HealthCare must have understood that its procedure was breaking new ground.

While the result might have been predictable, the court’s opinion contains an interesting discussion regarding the nature and extent of an administrator’s discretion when interpreting plan documents. A health care plan, of course, cannot always provide crystal clear guidance regarding every potential issue involving a claim. Instead, plans typically provide discretion to the administrator to interpret plan provisions and award benefits. As long as the interpretation is reasonable, courts ordinarily defer to that interpretation.

The court determined that United HealthCare’s practice was not expressly permitted by any of its customers’ plan documents. Recognizing this, United HealthCare argued that each plan granted it broad authority to interpret plan terms and administer the plan, and that its discretion extended to the cross-offsetting procedure.

The court’s response? Nope

The court was not persuaded, stating that to adopt United HealthCare’s position “would be akin to adopting a rule that anything not forbidden by the plan is permissible.” The court was concerned that establishing such a rule would undermine plan participants’ ability to rely on written plan provisions and to know the metes and bounds of the administrators’ authority. The court also noted that health care plans are required to be in writing, and that allowing such a broad power to interpret a plan in the absence of written guidance would undermine that rule.

While the court did not feel the need to specifically determine whether the cross-plan offsetting procedure violated ERISA itself, it did note that an administrator must act with a fiduciary duty to administer the plans for the exclusive purpose of providing benefits, and that that duty ran separately to each plan it administers. The court stated:

“Cross-plan offsetting is in tension with this fiduciary duty because it arguably amounts to failing to pay a benefit owed to a beneficiary under one plan in order to recover money for the benefit of another plan.”

These concerns lead the court to conclude that United HealthCare failed to properly administer the plans. They also underscore the limits plan administrators have when interpreting plan documents. To be valid, those interpretations must find some support in the language of the plan, be reasonable, and also be consistent with the technical requirements and underlying fiduciary duties imposed by ERISA and its governing regulations.

January 24, 2019

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