Because the health insurance industry has legal immunity in many situations from bad faith lawsuits, it operates differently in many ways than the remainder of the insurance industry. Health insurance companies do not tend to investigate and evaluate claims in the same manner as auto insurance or homeowners insurance companies. My experience prosecuting bad faith lawsuits against health insurance companies has taught me the duty of good faith and fair dealing is far from their minds when deciding whether to approve payment for medical treatment of their policyholders. Some health insurance denials are truly outrageous.
Our health care system in this country has many problems, but few are as troubling as when an insurance company tries to play doctor.
Why does the health insurance industry think they can get away with this? Because too often, they can. The health insurance industry enjoys special protections from liability for insurance bad faith claims that other kinds of health insurance companies do not. In 1974, Congress passed the Employee Retirement Income Security Act or “ERISA.” One of the effects of ERISA is to preclude insurance bad faith claims against ERISA-governed insurance policies. If you bought your health insurance through a group sponsored by your employer, ERISA applies to preclude you from bringing a bad faith claim, with some exceptions. These exceptions can be extremely important.
Generally, if you purchased your health insurance through a group health plan established or maintained by a governmental entity or a church, ERISA does not apply to your health insurance plan. Put another way, if you are a Government employee (local, county, state or federal) or a church employee, it is likely your health insurance plan is not governed by ERISA and therefore you can bring a bad faith claim against your health insurance company.
Likewise, if you did not buy your health insurance through a group but instead bought it individually (for instance because you are self-employed or because you purchased your policy through the Affordable Care Act or “Obamacare” exchanges) ERISA does not apply to your policy. Therefore, if you bought your insurance policy individually it is likely your policy is not governed by ERISA and therefore you can bring a bad faith claim against your health insurance company.
Very few people know these rules exist, and almost everyone who finds out wonders why. Let’s just say the health insurance industry has a stronger political lobby in Washington, D.C. than anyone who would seek to oppose ERISA immunity from bad faith claims.
But, for those policyholders whose medical treatment is denied but who work for the government or bought their health coverage individually, there is recourse. The duty of good faith and fair dealing applies, and the health insurance industry is not set up to defend itself effectively against these claims. In the hands of the right lawyers, these can be very powerful cases.