Opinion
Case No. 01-2309-JWL.
February 15, 2002.
MEMORANDUM ORDER
Pro se plaintiffs Julie and George Donner bring this action pursuant to the Federal Retirement Income Securities Act of 1974 (ERISA), 29 U.S.C. § 1132(a)(1)(B), alleging that defendant Lawrence Paper Company ("Paper Company") failed to properly reimburse them under the Paper Company's medical plan for health-related expenses. Specifically, plaintiffs seek plan benefits of $1,767.30 in health-related expenses, consisting of: (1) $1,235 related to "well baby checkups;" (2) $300 in expenses incurred by Julie Donner in the last three months of 1999 that plaintiffs contend should have been applied to the family deductible of $600 for 2000; (3) $50 for two emergency room visits; and (4) $182.30 attributable to prescription drug expenses.
Defendant argues that the first three components of expenses are either not covered or not supported by the clear terms of the plan, and the uncontroverted facts establish that the prescription drug expenses submitted by plaintiffs, with the exception of one charge of $11.82, were paid. The $11.82 expense remains unpaid because, according to defendant, plaintiffs have not submitted a claim.
The matter is presently before the court on defendant's motion for summary judgment (Doc. 25). The motion is granted because plaintiffs' expenses either are not covered by the Paper Company's plan, have been reimbursed by the Paper Company or have not been submitted to the Paper Company for reimbursement.
I. Uncontroverted Facts
The Lawrence Paper Company ("the Paper Company") is the Plan Sponsor and the Plan Administrator of the Lawrence Paper Company Health Care Plan ("the plan"), which provides health care benefits to eligible employees of the Paper Company and their dependents. Plaintiff George Donner, Jr. is a former employee of the Paper Company, and plaintiff Julie Donner is George's spouse. Plaintiffs have three children, Megan, Taylor and Nicole. At all times pertinent to this matter, George Donner was an "eligible employee" (as that term is defined in the plan) of the company and was entitled to coverage under the plan. Julie Donner and the plaintiffs' three children were "dependents" (as that term is defined in the plan), and were also entitled to coverage under the plan.
At all times pertinent to this matter, the plan's terms have been included in a Plan Document/Summary Plan Description dated January, 1998 (the "1998 Summary Plan Description"), and a revised and amended Plan Document/Summary Plan Description dated January 1, 2001 (the "2001 Summary Plan Description"). The 1998 and 2001 Summary Plan Descriptions serve as both the Plan Document and the Summary of Plan Description for the plan.
While plaintiff controverts this allegation by arguing that the document is only a summary for the cafeteria plan, the dispute is not material because plaintiff does not cite to any other document that would apply. It is clear that the 1998 and 2001 Summary Plan Descriptions set out the benefits applicable to this action.
The benefits provided under the plan are not funded by the purchase of insurance. Instead, the plan is funded by contributions paid by both the employer and employee, in amounts determined by the employer in its sole discretion. The plan does, however, have "excess" insurance which reimburses the plan for any amount it pays on any particular claim in excess of a certain limit and any amount it pays in the aggregate over a certain limit in a particular year. The coverage does not insure individual plan participants, only the plan.
Although plaintiffs state they do not understand what "excess" insurance is, they do not dispute this fact.
During a portion of the time relevant to plaintiffs' claims, CoreSource, Inc. was the "Claims Supervisor" for the plan. In that capacity, CoreSource performed services for the plan, including handling and paying claims. To the extent that CoreSource paid claims submitted to the plan, according to a declaration of a Lawrence Paper Company employee, Liz Stark, it paid those claims with checks drawn on an account funded by the Paper Company with contributions made by the Paper Company and its employees. Liz Stark's declaration also submits that CoreSource has never acted as an insured with respect to the benefits provided by the plan.
Liz Stark has been employed by the Lawrence Paper Company as a "Personnel Specialist" since 1984. She has had the primary day-to-day responsibility for administering the Lawrence Paper Company's plan.
Plaintiffs point out that they have no proof that CoreSource was provided with money to pay claims and plaintiffs question the process because checks were paid to them from CoreSource. Plaintiffs also contend that paying claims made CoreSource an insurer. Plaintiffs' allegations do not, however, create a disputed material fact because they provide no documents to support these bare allegations and it is clear from defendant's documentation that plaintiffs' allegations are unfounded.
As explained in detail in the introduction, plaintiffs seek to recover $1767.35 in benefits under the plan, consisting of four components. With respect to plaintiffs' $300 claim relating to the carryover of $300 in 1999 charges toward the 2000 family deductible, according to defendant, plaintiffs contested that denial in a letter dated June 26, 2000. It appears that plaintiffs deny sending a June 26, 2000 letter. Nonetheless, plaintiffs sent another letter received by the Paper Company on August 7, 2000, addressed to the "Plan Administrator," appealing the denial of their $300 request for benefits relating to the carry over provision. In that same letter, plaintiffs also appealed the denial of their request for $1235 relating to "well baby check-ups." Defendant responded to the August 7, 2000 letter on October 6, 2000. The October 6, 2000 letter explained the reasons the Plan Administrator and Claims Supervisor decided to deny the plaintiffs' requests.
Defendant does not rely on the June 26, 2000 letter submitted by plaintiff. Thus, the disputed fact is not material.
Confusion was created regarding this fact because defendant accidentally stated that the October 6, 2000 letter was dated October 7, 2000. Plaintiffs then allege, in their response, that they do not know about a letter dated October 7, 2000. Defendant clears up the confusion in its reply, explaining that plaintiffs concede in their response to defendant's requests for admissions that they received a letter dated October 6, 2001 from defendant that denied their claims.
Plaintiffs allege that they appealed the plan's failure to reimburse them for two separate $25 deductibles attributable to two emergency room visits by family members. Defendant asserts, however, that it has no record of such an appeal.
Plaintiffs also allege that they appealed the plan's failure to reimburse them for $182.30 in prescription drug expenses by letter dated January 10, 2001. Defendant states, however, that it has no record of receiving such a letter and it questions the authenticity of the January 10, 2001 letter plaintiffs have submitted to the court.
With respect to $182.30 in prescription drug expenses, plaintiffs have submitted expenses in the following amounts: $5.59, $15.42, $7.18, $58.56, $5.59, $16.03, $6.69, $7.96, $31.13, $13.89, $4.28, $8.39, $9.96, $7.48, $27.99 and $11.82. Defendant has provided the court with documentation, including copies of checks written to plaintiffs, establishing that all of the claims, except the $11.82 claim, have been paid.
Defendant points out that although plaintiffs' claim in the pretrial order is for $182.30, the individual expenses amount to $237.96. The difference is irrelevant to the outcome of this matter.
Plaintiffs respond to this fact by stating that they have not seen copies of the checks that defendant produced to the court. Defendant's documentation is sufficient to show that plaintiffs have been paid.
With respect to the $11.82 expense, defendant states it never received a claim for this expense. Defendant alleges that if it does receive a claim in the future, the Plan Administrator will process it in the ordinary course. Although plaintiffs concede they have no record of the $11.82 expense for prescription drugs, they assert that they did submit a claim. Moreover, according to plaintiffs, defendant, prior to its motion for summary judgment, had never mentioned that plaintiffs did not submit a claim. Defendant disputes this statement.
II. Summary Judgment Standard
Summary judgment is appropriate if the moving party demonstrates that there is "no genuine issue as to any material fact" and that it is "entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). In applying this standard, the court views the evidence and all reasonable inferences therefrom in the light most favorable to the nonmoving party. Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)). A fact is "material" if, under the applicable substantive law, it is "essential to the proper disposition of the claim." Id. (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). An issue of fact is "genuine" if "there is sufficient evidence on each side so that a rational trier of fact could resolve the issue either way." Id. (citing Anderson, 477 U.S. at 248).
The moving party bears the initial burden of demonstrating an absence of a genuine issue of material fact and entitlement to judgment as a matter of law. Id. at 670-71. In attempting to meet that standard, the movant may simply point out to the court a lack of evidence for the other party on an essential element of that party's claim. Id. at 671 (citing Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986)).
Once the movant has met this initial burden, the burden shifts to the nonmoving party to "set forth specific facts showing that there is a genuine issue for trial." Anderson, 477 U.S. at 256; see Adler, 144 F.3d at 671 n. 1 (concerning shifting burdens on summary judgment). The nonmoving party must "set forth specific facts that would be admissible in evidence in the event of trial from which a rational trier of fact could find for the nonmovant." Adler, 144 F.3d at 671. "To accomplish this, the facts must be identified by reference to affidavits, deposition transcripts, or specific exhibits incorporated therein." Id.
III. Analysis
1. Standard of Review
A. Expenses in the Amount of $1,235 Related to "Well-Baby Check-Ups" and $300 Claim Related to the Carry-over of the 1999 Deductible
Plaintiffs seek review of defendant's denial of benefits under the Paper Company's health plan. "[A] denial of benefits challenged under § 1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan," in which case an arbitrary and capricious standard is appropriate. Firestone Tire Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989).
Defendant's health care plan explicitly grants the Plan Administrator discretionary authority to "interpret and construe the provisions of the Plan," and to "decide disputes relative to the rights under the plan of all parties." Thus, the arbitrary and capricious standard is appropriate in analyzing defendant's denial of plaintiff's requests under the health care plan. Accordingly, the court must determine whether defendant's denial of benefits was arbitrary and capricious.
"The touchstone of [the court's] inquiry is whether defendant's interpretation of its plan is reasonable." Semtner v. Group Health Services of Oklahoma, Inc., 129 F.3d 1390, 1393 (10th Cir. 1997). "The decision will be upheld unless it is not grounded on any reasonable basis," meaning that the "reviewing court need only assure that the administrator's decision falls somewhere on a continuum of reasonableness — even if on the low end." Kimber v. Thiokol Corp., 196 F.3d 1092, 1098 (10th Cir. 1999) (citations and internal quotations omitted). Evidence of arbitrary and capricious actions include a mistake of law, bad faith and lack of substantial evidence. Sandoval v. Aetna Life Cas. Ins. Co., 967 F.2d 377, 380 n. 4 (10th Cir. 1992).
2. Defendant's Decision to Deny Plaintiffs' $300 Claim Was Reasonable
Although plaintiffs do not make this argument, there does appear to be a conflict of interest because defendant administers the health care plan and, therefore, could be affected financially by its decision to pay plaintiffs' claims. If an ERISA plan confers discretionary authority on a fiduciary acting under a conflict of interest, that conflict is one factor for the court's consideration. Firestone, 489 U.S. at 115. The Tenth Circuit has held that "the degree of deference to accord such a decision will be decreased on a sliding scale in proportion to the extent of conflict present, recognizing the arbitrary and capricious standard is inherently flexible." McGraw v. Prudential Ins. Co. of Am., 137 F.3d 1253, 1259 (10th Cir. 1998). The court does not address the appropriate level of deference in detail because even if the court affords defendant a lesser amount of deference, it will not change the outcome.
Plaintiffs argue that $300 of medical expenses incurred by plaintiff Julie Donner during the last three months of 1999 should apply toward $600 of the family deductible for 2000. According to defendant, on October 6, 2000, a letter signed by Dreher Goodrich, on behalf of Lawrence Paper Company, the Plan Administrator of the Employee Heath Care Plan, and CoreSource, the Claims Supervisor of that Plan, was sent to plaintiffs. The letter communicated the denial of plaintiffs' appeal with respect to the $300 claim based on language contained in the 1998 Summary Plan Description. The letters stated, in pertinent part, the following:
The first issue you raise concerns the deductible provision of the Plan. The provision in issue is set forth on page 18 of the Summary Plan Description dated 1998 and provides as follows:
Each calendar year beginning January 1, a new deductible must be satisfied. Any charges incurred by an individual during the last three months of a year and applied toward such individual's deductible for that year will be applied also toward such individual's deductible for the next year.
We understand that, based on this provision, you would like to apply charges incurred by an individual family member in the last three months of a year to the family deductible the following year. The language of the Plan does not permit that result. The Summary Plan Description states quite clearly that charges incurred in the last three months of a year "will be applied also toward such individual's deductible for the next year."
Plaintiffs argue that defendant's denial of plaintiffs' $300 claim was arbitrary and capricious because the carry-over provision should not be limited to only individual deductibles and because the defendants added the following language in the 2001 Summary Plan Description: "Any carry-over deductible, however, will not be applied to any `family' deductible for the following next year." The court concludes, after reviewing the record, that the Plan Administrator's interpretation of the 1998 Summary Plan Description was reasonable. The plain language of the plan indicates that the carry-over provision applies only to individual deductibles, not family deductibles and the Paper Company's decision to add additional language in the 2001 Summary Plan Description does not mean that the prior language was not clear.
3. Defendant's Decision to Deny Plaintiffs' $1235 Claim Was Reasonable
Plaintiffs argue that the health care plan should pay for $1235 in expenses related to "well-baby check-ups." In the same October 6, 2000 letter described above, Mr. Goodrich communicated the denial of plaintiffs' appeal with respect to the $1235 claim as follows:
The second issue you raise concerns payment by the Plan of medical expenses for well-baby check-ups. We understand you contend that the Plan should pay for such expenses once the "Out of Pocket" limits are reached. The Summary Plan Description, however, includes the following in the category of "Medical Expenses Not Covered":
42. Charges for well-baby care of a newborn infant, except that the charges made by a hospital for nursery accommodations while hospital-confined at birth will be payable under the Major Medical section of the Plan, not subject to the deductible.
(emphasis in original). Ordinary well-baby care expenses are never a benefit provided by the Plan. Accordingly, such expenses are not covered after the maximum Out of Pocket limits are reached.
Plaintiffs argue that the phrase "except that the charges made by a hospital for nursery accommodations while hospital-confined at birth will be payable under the Major Medical section of the Plan," is a nonrestrictive element that is unimportant and should be taken out. Therefore, according to plaintiffs, the section should read, "[c]harges for well-baby care of a newborn infant not subject to the deductible." Even if the plaintiffs' reading were correct, well-baby care would not be covered because the phrase is still in the context of a section entitled: "Medical Expenses Not Covered." Plaintiffs' reading is not correct, however, because the clause is not a nonrestrictive element. The plaintiffs' interpretation misconstrues the meaning of the section. The plain language of the section excludes coverage of well-baby care except for those charges incurred at a hospital while a child is being born. The phrase after the last comma is intended to point out that if coverage exists because the expenses are incurred while hospital-confined at birth, the charges are not subject to the deductible. Consequently, the court concludes that the Plan Administrator's decision to deny $1235 in well-baby care expenses was reasonable.
Plaintiffs also argue that well-baby care expenses should be covered under the Paper Company's plan because K.S.A. § 40-2, 102 requires routine immunization and care for newborns in their first 72 months. K.S.A. § 40-2, 102, however, applies only to "individual and group health insurance policies providing coverage on an expense incurred basis, individual and group service or indemnity type contracts issued by a profit or nonprofit corporation and all contracts issued by health maintenance organizations or authorized to transact business in this state." Consequently, it appears that the statutory requirement does not apply to self-funded ERISA plans, like the Paper Company's plan.
Even assuming that the Kansas statutory requirement applies to self-funded ERISA plans, it is preempted by ERISA. The ERISA preemption clause, 29 U.S.C. § 1144(a), provides: "Except as provided in subsection (b) of this section [the savings clause], the provisions of this subchapter and subchapter III of this chapter shall supercede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan. . . ." While the preemption clause applies to broadly preempt state laws attempting to regulate employee benefit plans, it does not preempt state laws regulating insurance. The ERISA savings clause 29 U.S.C. § 1144(b)(2)(A), provides: "Except as provided in subparagraph (B) [the deemer clause], nothing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banks or securities."
The ERISA deemer clause, 29 U.S.C. § 1144(b)(2)(B), provides:
Neither an employee benefit plan . . . nor any trust established under such a plan, shall be deemed to be an insurance company or other insurer, bank, trust company, or investment company or to be engaged in the business of insurance or banking for purposes of any law or any State purporting to regulate insurance companies, insurance contracts, banks, trust companies, or investment companies.
In FMC Corp. v. Holliday, 498 U.S. 52 (1990), the United States Supreme Court stated:
We read the deemer clause to exempt self-funded ERISA plans from state laws that `regulate insurance' within the meaning of the savings clause. By forbidding States to deem employee benefit plans `to be engaged in the business of insurance,' the deemer clause relieves plans from state laws `purporting to regulate insurance.' As a result, self-funded ERISA plans are exempt from state regulation insofar as that regulation `relate[s] to' the plans.Id. at 61.
The Court added, however, that employee benefit plans that are insured are subject to indirect state insurance regulation. Id. Here, the Paper Company's ERISA plan is not insured for ERISA preemption purposes. Although defendant concedes that the plan does have stop-loss or excess insurance, stop-loss insurance does not make a self-funded employee benefit plan insured for the purposes of ERISA preemption. Bill Gray Enter. v. Gourley, 248 F.3d 206, 214 (3d Cir. 2001) (noting that there is a consensus among all four circuits that have decided this issue); see also American Med. Sec., Inc. v. Bartlett, 111 F.3d 358 (4th Cir. 1997); Lincoln Mut. Cas. Co. v. Lectron Prod., Inc., Employee Health Benefit Plan, 970 F.2d 206 (6th Cir. 1992); United Food Commercial Workers Employers Ariz. Health Welfare Trust v. Pacyga, 801 F.2d 1157 (9th Cir. 1986).
Plaintiffs also question whether the plan is self-funded. Specifically, plaintiffs allege the plan is not self-funded because the plan has excess insurance and because CoreSource paid some of the claims under the plan. The court cannot agree with this reasoning. Excess insurance merely covers claims made under the plan that are beyond a certain dollar figure and the fact that CoreSource paid some claims, as the Claims Supervisor of the plan, does not impact the plan's self-funded status. Accordingly, the court concludes the plan is a self-funded ERISA plan.
In sum, the Court in FMC Corp. clearly held that state regulations, like K.S.A. § 40-2, 102, are preempted by ERISA to the extent that the provisions apply to self-funded employee benefit plans. Because the provision is preempted by ERISA, the plan is not required to cover well-baby care expenses. The plan's language clearly excludes coverage. Accordingly, the Plan Administrator's decision to deny coverage under the plan was reasonable.
B. Expenses in the Amount of $50 Related to Emergency Room Deductibles
Plaintiffs next claim that they are owed $50 for two separate $25 expenses arising from deductibles for an emergency room visit by Megan Donner on September 10, 2000 and another emergency room visit by Julie Donner on September 28, 2000. Plaintiffs contend that they submitted a written appeal concerning this $50 charge. A copy of the letter they allegedly sent is attached to their response as Exhibit C. Although the Paper Company disputes the authenticity of the document that plaintiffs contend is their appeal, the court need not address that issue.
Assuming plaintiffs filed an appeal, the court concludes, under a de novo standard of review, that the Paper Company's plan mandates a $25 charge for every emergency room visit, regardless of whether the out-of-pocket limits have been reached. The 1998 Summary Plan Description contains three different provisions relating to emergency room deductibles. The provisions clearly state that there is a $25 deductible for each emergency room visit separate from the individual and family deductibles. Plaintiffs argue that the $25 deductible should not apply after the out-of-pocket limits are reached. In support of this position plaintiffs cite to the following passage in the 1998 Summary Plan Description: "Upon attaining the out-of-pocket limit, benefits are paid at 100% for the remainder of the calendar year." Reading the plan language in context, however, the court concludes that this passage is clearly intended to relieve co-payment obligations once the out of pocket limit is reached.
Plaintiffs also contend that the $25 charge is unfair and unreasonably expensive. Irrespective of whether it is fair, the language in the plan is clear. "Nothing in ERISA requires employers to establish employee benefit plans[,] [n]or does ERISA mandate what kind of benefits employers must provide if they chose to have such a plan." Lockheed Corp. v. Spink, 517 U.S. 882, 887 (1996). The court concludes that plaintiffs are not entitled to $50 for emergency room deductible charges.
C. Expenses in the Amount of $182.30 Related to Prescription Drugs
Plaintiffs next claim they are entitled to $182.30 for expenses incurred for prescription drug expenses. Defendant does not dispute that these expenses are covered under the plan; instead, it provides documentation establishing that all but $11.82 of prescription drug expenses have been paid. Defendant contends there was never a claim for reimbursement for the remaining $11.82. After reviewing the documentation provided by defendant, including checks written to plaintiffs, it is clear that, apart from the $11.82, all of the expenses have been paid.
In their response to defendant's motion for summary judgment, plaintiffs state that a $27.99 prescription drug expense had not been paid. Defendant conceded in its motion for summary judgment that a mistake had been made regarding payment and promised to pay the claim. In its reply brief, defendant included a declaration of Liz Stark that states that plaintiffs' claim for $27.99 was paid on January 23, 2001. Along with the declaration, a copy of the check was attached.
With regard to the $11.82, plaintiffs fail to provide the court with documentation establishing that they submitted a claim for $11.82. Defendant alleges plaintiffs never submitted a claim. Assuming plaintiffs failed to submit proof of a claim, they have not exhausted the plan's internal appeal procedures. In the Tenth Circuit, exhausting administrative remedies is a prerequisite to bringing a claim under § 1132(a)(1)(B). Gaylor v. John Hancock Mut. Life Ins. Co., 112 F.3d 460, 467 (10th Cir. 1997). Accordingly, the claim must be dismissed. Clark v. Humana Kansas City, Inc., 975 F. Supp. 1283, 1285 (D.Kan. 1997) (dismissing ERISA benefits claim for failure to exhaust the plan's internal appeal procedure).
IT IS THEREFORE ORDERED BY THE COURT THAT defendant's motion for summary judgment is granted.