Opinion
03 CIV. 3230 (DLC)
February 17, 2004
George Kast, New York, NY, Pro se, For Plaintiff
Michael J. Zaretsky, Allan R. Jacobs, Chorpenning, Good, Carlet Garrison, Esqs., New York, NY, For Defendant
OPINION AND ORDER
George Kast ("Kast") originally filed this action in the Civil Court of the City of New York to recover benefits to which he alleges he is entitled under the Liberty Mutual Medical Plan ("Medical Plan"). Liberty Mutual Insurance Company ("Liberty") removed the action to federal court on May 7, 2003. Kast's claims arise from an employee welfare benefit plan governed by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001, et seq. A conference with the Court on October 31, failed to resolve this dispute. On December 5, Liberty moved for summary judgment on the ground that Liberty's determination of the benefits owed Kast was neither arbitrary nor capricious. For the following reasons, the motion is granted.
Background
The following facts are undisputed. Kast is a Liberty retiree and is insured by its Medical Plan, under which he elected the $200 deductible option. Kast was also covered by the Medicare program at the time the present dispute arose. Under the terms of the Medical Plan, once a retiree becomes eligible for Medicare, it serves as the individual's primary insurer. The Medical Plan then coordinates with Medicare to offer secondary coverage, or the "maintenance of benefits."The Medical Plan provides as follows:
. . . . The Plan does not cover charges payable by Medicare. In addition, the Company will pay no more after Medicare than it would pay as primary payer. For example, if Medicare has already paid 80% of a covered charge, Liberty will pay nothing further, since Liberty's plan would not pay more than 80%. . . .
Under its primary coverage, the Medical Plan covers medical expenses at 80% of the Reasonable Customary amount after an individual has met the $200 annual deductible. The Medical Plan defines the "Reasonable Customary amount" as the lesser of: (a) the charge that a provider most often charges patients for the service or procedure; or (b) the customary charge for the service or procedure. Such customary charge will be determined from within the range of charges made for the service or procedure by most providers in the general geographic area where the provider maintains his usual place of business. The reasonable and customary charge will not exceed the 80th percentile of the HIAA (Health Insurance Association of America) prevailing fee schedules (or the schedule used by the claims administrator that most closely approximates the HIAA fee schedule).
* * *
Here is how the Medical Plan coordinates when it is the secondary plan:
• The Medical Plan determines the benefit that would be paid if it were the only plan. This includes applying the appropriate co-pay, deductible, co-insurance, and all other benefit limitations.
• The amount of benefits paid by the primary plan is subtracted, or "carved out" from any benefit that would be paid by the Medical Plan. This means that when the Medical Plan is secondary, it will only pay the difference between its usual benefit and the benefit paid by the primary plan (including Medicare, if applicable).
The Medical Plan then offers this illustration of the coordination of benefits with Medicare:
Original billed amount from hospital $2,000 Medicare approved charge $1,500 Medicare hospital deductible $792
Paid by Medicare $708
For coordination of benefits, Liberty would consider the following:
Medicare approved charge $1,500 Liberty deductible $200 $1,300
Liberty co-insurance x80% Amount Liberty would have paid in the absence of Medicare $1,040
Subtract amount already paid by Medicare $708 Liberty's payment $332
Now, in order to determine the balance you pay: Medicare payment $792 PLUS Liberty payment $332 Total Plan payments (including Medicare) $1,040
Medicare approved charge $1,500 Subtract total Plan payments $1,040 Retiree payment $460
This appears to be an error in the Medical Plan materials. The amount paid by Medicare is $708, which totals to $1,040 when added to Liberty's payment of $332.
The $460 you pay will be applied toward your out-of-pocket maximum of $1,200 for covered charges for the year.
Please note that if your health provider does not take assignment, the Plan will continue to coordinate with Medicare using the Reasonable and Customary charge at the 80th percentile of the HIAA tables.
Finally, the Plan contains a provision describing the Authority of the Plan Administrator, Liberty:
The Plan Administrator has the authority, in its sole discretion, to construe the terms of this Plan and decide all questions of eligibility, determine the amount, time and manner of payment of any benefits and decide any other matters relating to the administration or operation of the Plan. Any such interpretations or decisions of the Plan Administrator shall be conclusive and binding.
Kast was hospitalized from September 4 through 7, 2002, at the Tisch Hospital ("Tisch") in Manhattan. The charges for Kast's stay totaled $12,201.47, of which Medicare approved $6,139.92. Tisch accepted the assignment of Medicare benefits, thereby agreeing to charge no more than the approved amount of $6,139.92. Medicare payed this sum, less a Medicare hospital deductible of $812 that was billed to Kast. Aetna U.S. Healthcare ("Aetna"), the claims administrator for the Medical Plan, processed Kast's claim for additional benefits and determined that he was entitled to a payment of $184.30. The form sent to Kast states "Benefits have been reimbursed by your primary insurer an amount equal to or greater than what our plan would pay if it were the only plan. Therefore, benefits have been reduced." At the time of the hospitalization, Kast had already paid $572.30 in medical expenses, which was applied to his out-of-pocket maximum of $1,200. Therefore, any amount over $627.70 — or $184.30 — was covered by the Medical Plan.
Kast appealed this determination by letter to Aetna dated February 5, 2003. Aetna advised him that Liberty was the plan fiduciary responsible for review of appealed claims and forwarded the appeal to Liberty. A Liberty Benefit Specialist ("Specialist") responded to Kast's appeal by letter dated February 18, stating that "when the Aetna Medical Plan is secondary, it will only pay the difference, if any, between its usual benefit and the benefit paid by Medicare." The letter offers a detailed, albeit confusing, calculation of Kast's claim. The calculation differs from the illustration provided in the pamphlet by incorporating in "the amount Liberty would have paid in the absence of Medicare" the Medical Plan's obligation after Kast had met his $1,200 annual out-of-pocket maximum. The Specialist affirmed the decision that Kast was only entitled to a payment of $184.30.
The letter therefore concludes that Liberty would have paid $5,512.22 in the absence of Medicare, resulting in a payment to Kast of $184.30. If one instead calculates Liberty's payment according to the schematic provided in the Medical Plan, the result is that Medicare has already paid over 80% of the approved charge, leaving the full payment to Kast except to the extent that he has exceeded his annual out-of-pocket maximum. Since he had already paid out $527.30 that year, the $812 charge would have exceeded the out-of-pocket maximum. The Medical Plan covered the difference of $184.30.
Kast appealed the February 5 determination by letter dated March 12, 2003, again asserting that he was entitled to 80% of $812 charge. He did not dispute Liberty's calculation of benefits, but disagreed with the formula used by the Plan itself, which he argues is illogical and results in underpayments to beneficiaries. Liberty rejected the appeal on March 26, 2003, restating the position of its earlier letter and providing similar calculations.
In Kast's Statement of Claim, submitted to the Civil Court of the City of New York, he sought relief in the amount of $565. When the case was removed to this Court, Kast submitted a second Statement of Claim, in which he seeks an award of $4,015.70.
Kast states that he arrives at this figure by calculating 80% of the total hospital charges of $12,201 (less the $400 private room charge), and subtracting the amount already paid by Medicare and by Liberty.
Discussion
Under ERISA, a beneficiary is generally required to exhaust his administrative remedies before bringing suit. See, e.g., Burke v. Kodak Retirement Income Plan, 336 F.3d 103, 107 (2d Cir. 2003). The exhaustion requirement is designed to ensure that ERISA trustees rather than courts are responsible for the decisions that affect plan beneficiaries. Davenport v. Abrams, 249 F.3d 130, 133 (2d Cir. 2001). When an employee benefit plan confers discretionary authority on a fiduciary to construe the terms of the plan, a court employs an arbitrary and capricious standard to review the fiduciary's decision. Fay v. Oxford Health Plan, 287 F.3d 96, 104 (2d Cir. 2002); Kinstler v. First Reliance Standard Life Ins. Co., 181 F.3d 243, 252 (2d Cir. 1999). The court's review is limited to the administrative record absent a finding of "good cause" to warrant the introduction of additional evidence. Krizek v. Cigna Group Ins., 345 F.3d 91, 97 (2d Cir. 2003).ERISA provides that a plan fiduciary must administer the plan in accordance with its language. 29 U.S.C. § 1104 (a)(1)(D). Under the arbitrary and capricious standard of review, a plan administrator's rational interpretation of the plan must be allowed to control even if a claimant offers a conflicting, rational interpretation. Pulvers v. First Unum Life Ins. Co., 210 F.3d 89, 92-93 (2d Cir. 2000) (citation omitted). A court may overturn a fiduciary's decision to deny benefits under this standard only if the decision is "without reason, unsupported by substantial evidence or erroneous as a matter of law." Id. at 92.
There is no dispute that the Medical Plan language providing that "the Plan Administrator has the authority, in its sole discretion, to construe the terms of this Plan and . . . determine the amount, time and manner of any payment of benefits" constitutes a grant of discretionary authority triggering arbitrary and capricious review. The section of the Medical Plan entitled "Coordination of Benefits" provides a specific illustration of how the Medical Plan offers secondary coverage to a patient enrolled in the Medicare program. The numeric example and accompanying text make clear that when a provider takes an assignment from Medicare, the amount assigned is considered the baseline against which the Medical Plan determines the amount it would pay at the 80% rate. If Medicare pays more than 80% of the assigned charge, the Medical Plan does not provide any benefits until the beneficiary has exceeded the $1200 annual out-of-pocket maximum.
Medicare paid more than 80% of the approved charge of $6,139.92 for Kast's hospitalization. Therefore, according to the model provided demonstrating the coordination of benefits between the Medical Plan and Medicare, the Medical Plan would not pay any part of the remaining charge of $812 until Kast met his $1,200 annual out-of-pocket maximum. As a result of prior medical expenses paid by Kast, he met the out-of-pocket maximum with a payment of $627.70, after which the Medical Plan covered the remaining $184.30 of the Medicare deductible.
Kast argues that the formula employed by the Medical Plan is arbitrary and capricious and is designed to avoid paying beneficiaries 80% of the Medicare deductible, which is a reasonable and customary charge. It is not the province of the Court to evaluate the coverage formula adopted by the Medical Plan. Rather, the Court's review is limited to determining whether Liberty resolved Kast's request for benefits based on a rational interpretation of the Medical Plan as written.
Kast also contends that Liberty acted arbitrarily and capriciously by using the "Medicare approved charge" of $6,139.92 as the baseline against which Liberty calculated the amount it would have paid in the absence of Medicare. His primary argument is that in the absence of Medicare, Liberty would have paid 80% of the total hospital charge of $12,201.47, less the $400 charge for a private room, and that the Medical Plan's formula for coordination of benefits with Medicare therefore underpays beneficiaries. The Medical Plan's formula for primary coverage provides that the insurer pays 80% of "Reasonable and Customary" charges, limited by definition to the 80th percentile of the Health Insurance Association of America fee schedules. The discussion of the Medical Plan's coordination of benefits with Medicare specifies that if a provider does not take assignment by Medicare, the Medical Plan will continue to coordinate using its definition of a Reasonable and Customary charge. Once Tisch agreed to accept Medicare's approved charge in complete satisfaction of its bill, however, it is no longer appropriate to use the amount of its original bill — which is almost twice as high — as the basis for computing Kast's reimbursement. Kast is not entitled under the Medical Plan to payments calculated on the basis of a bill which has been withdrawn.
The Medical Plan's illustration of the coordination of benefits with Medicare makes clear that the Medical Plan will pay no more than 80% of Medicare's approved charge when a provider accepts assignment. Liberty's determination of Kast's benefits is consistent with this language and the sample calculation. Under the applicable standard of review, Liberty's rational interpretation of the Medical Plan must be allowed to control.
Conclusion
The defendant's motion for summary judgment is granted. The Clerk of Court shall close the case.
SO ORDERED