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70–781—PDF 2010

S. HRG. 111–1095 

DO PRIVATE LONG-TERM DISABILITY POLICIES 

PROVIDE THE PROTECTION THEY PROMISE? 

HEARING 

BEFORE THE

COMMITTEE ON FINANCE 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

SEPTEMBER 28, 2010 

( 

Printed for the use of the Committee on Finance 

COMMITTEE ON FINANCE 

MAX BAUCUS, Montana, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

KENT CONRAD, North Dakota 

JEFF BINGAMAN, New Mexico 

JOHN F. KERRY, Massachusetts 

BLANCHE L. LINCOLN, Arkansas 

RON WYDEN, Oregon 

CHARLES E. SCHUMER, New York 

DEBBIE STABENOW, Michigan 

MARIA CANTWELL, Washington 

BILL NELSON, Florida 

ROBERT MENENDEZ, New Jersey 

THOMAS R. CARPER, Delaware 

CHUCK GRASSLEY, Iowa 

ORRIN G. HATCH, Utah 

OLYMPIA J. SNOWE, Maine 

JON KYL, Arizona 

JIM BUNNING, Kentucky 

MIKE CRAPO, Idaho 

PAT ROBERTS, Kansas 

JOHN ENSIGN, Nevada 

MICHAEL B. ENZI, Wyoming 

JOHN CORNYN, Texas 

RUSSELL SULLIVAN, Staff Director 

KOLAN DAVIS, Republican Staff Director and Chief Counsel 

(II) 

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Baucus, Hon. Max, a U.S. Senator from Montana, chairman, Committee 

on Finance ............................................................................................................ 1 

Grassley, Hon. Chuck, a U.S. Senator from Iowa ................................................. 3 

WITNESSES 

Leebove, Ronald, certified rehabilitation counselor, diplomate, American 

Board of Forensic Counselors, Scottsdale, AZ ................................................... 4 

DeBofsky, Mark, attorney, Daley, DeBofsky, and Bryant, Chicago, IL .............. 5 

Acker, Hon. William M., Jr., Senior U.S. District Court Judge, Northern 

District of Alabama, Birmingham, AL ............................................................... 7 

Rust, David, Deputy Commissioner for Retirement and Disability Policy, Social Security Administration, Baltimore, MD .................................................... 9 

Graham, Paul, senior vice president, insurance regulation, and chief actuary, 

American Council of Life Insurers, Washington, DC ........................................ 11 

ALPHABETICAL LISTING AND APPENDIX MATERIAL 

Acker, Hon. William M., Jr.: 

Testimony .......................................................................................................... 7 

Prepared statement .......................................................................................... 25 

Responses to questions from committee members ......................................... 68 

Baucus, Hon. Max: 

Opening statement ........................................................................................... 1 

Prepared statement with attachments ........................................................... 73 

DeBofsky, Mark: 

Testimony .......................................................................................................... 5 

Prepared statement .......................................................................................... 94 

Responses to questions from committee members ......................................... 102 

Graham, Paul: 

Testimony .......................................................................................................... 11 

Prepared statement .......................................................................................... 108 

Grassley, Hon. Chuck: 

Opening statement ........................................................................................... 3 

Prepared statement .......................................................................................... 117 

Leebove, Ronald: 

Testimony .......................................................................................................... 4 

Prepared statement .......................................................................................... 118 

Responses to questions from committee members ......................................... 131 

Rust, David: 

Testimony .......................................................................................................... 9 

Prepared statement .......................................................................................... 133 

Responses to questions from committee members ......................................... 142 

Snowe, Hon. Olympia J.: 

‘‘Impact of Disability Insurance Policy Mandates Proposed by the California Department of Insurance,’’ Milliman, Inc. study, dated November 

24, 2005 .......................................................................................................... 149 

COMMUNICATIONS

America’s Health Insurance Plans (AHIP) ............................................................ 175 

American Benefits Council and U.S. Chamber of Commerce .............................. 183 

Capener, Michael ..................................................................................................... 188 

Page

IV 

Craine, David ........................................................................................................... 190 

Crowell, Margaret L. ............................................................................................... 197 

The Hartford Financial Services Group, Inc. ........................................................ 201 

(1) 

DO PRIVATE LONG-TERM DISABILITY 

POLICIES PROVIDE THE 

PROTECTION THEY PROMISE? 

TUESDAY, SEPTEMBER 28, 2010 

U.S. SENATE, 

COMMITTEE ON FINANCE, 

Washington, DC. 

The hearing was convened, pursuant to notice, at 10:09 a.m., in 

room SD–215, Dirksen Senate Office Building, Hon. Max Baucus 

(chairman of the committee) presiding. 

Present: Senators Carper, Grassley, and Snowe. 

Also present: Democratic Staff: Bill Dauster, Deputy Staff Director and General Counsel; Claire Green, Congressional Fellow; Alan 

Cohen, Chief Counselor for Social Security and Senior Budget Analyst; Tom Klouda, Professional Staff Member; Jen Rigger, Congressional Fellow; and Jack McGills, Intern. Republican Staff: Steve 

Robinson, Chief Social Security Advisor. 

OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR 

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE 

The CHAIRMAN. The hearing will come to order. 

Black’s Law Dictionary defines ‘‘insurance’’ as ‘‘a contract whereby one party undertakes to compensate the other for loss.’’ Thus, 

an insurance policy is only good if the insurance company actually 

compensates the consumer when there is a loss. 

Today we will look at long-term disability insurance. We will consider cases where insurance companies are failing to live up to 

their side of the bargain, and we will hear ideas about how to fix 

it. 

We will learn about plans offered to employees through their employers. This occurs under ERISA, the Employee Retirement Income and Security Act. And we will compare what happens under 

ERISA with what happens under Social Security. 

Abusive insurance company tactics start with having doctors 

with conflicts of interest review claims. Many of these doctors are 

employed either by the insurance company or by the companies 

that do a lot of business with the insurance company. These arrangements make it far too easy for the doctors to deny claims, terminate claims, or reject appeals. 

Consider the case of Charles Tucker. Charles’s neurologist diagnosed him with multiple sclerosis. Charles’s doctor said that the 

disease ‘‘basically disabled him from performing his occupation.’’ 

Ten other doctors agreed. 

2 

Charles filed a claim with his long-term disability insurance company, Standard Insurance Company. Meanwhile, a doctor who 

worked for Standard put a medical report in Charles’s file. The 

company doctor never met Charles. The company doctor never examined him. Even so, the company doctor concluded that ‘‘the diagnosis of multiple sclerosis is not supported, and the patient could 

return to a sedentary work activity.’’ 

When Charles found out about this report, he was, understandably, quite upset. He contacted the news media, who contacted the 

insurer. Only then did Standard approve Charles’s claim. 

Or consider the case of Rocky Whitten. Rocky suffered a broken 

neck. As a result, Rocky had severe headaches, memory loss, pain, 

and significantly reduced vision from all the medicines that he had 

to take. Rocky’s doctor said that he was permanently disabled. 

But Rocky’s insurance company, The Hartford, hired a private investigator. The private investigator put Rocky under video surveillance, and that private investigator took videos of Rocky getting in 

and out of a van, reading a magazine, and dipping corn chips into 

salsa at a restaurant. 

So The Hartford sent Rocky a letter telling him that he was, 

‘‘physically capable of performing full-time sedentary occupations,’’ 

and The Hartford terminated his benefits. 

Rocky appealed the decision through The Hartford’s internal appeals program, but the company’s internal appeals program turned 

him down. Soon, his finances became desperate. Rocky and his attorney prepared to sue The Hartford, and Rocky reached out to the 

news media. The media called the company and, miraculously, The 

Hartford paid Rocky’s back benefits and reinstated his monthly 

benefits. 

Abuses like these are not uncommon. Thousands of cases clog the 

district courts. Many claimants end up in desperate straits. Some 

lose their homes, their savings, and even their spouses or custody 

of their children. 

How do the insurance companies get away with these abuses? 

Unfortunately, loopholes in the law permit them. 

First, ERISA preempts State insurance measures to address 

these abuses. That means that claimants cannot get jury trials, 

pretrial discovery, or the right to submit evidence to the court. And 

claimants cannot receive punitive or consequential damages. 

Second, companies can include what is called a discretionary 

clause in their insurance plan document. In most States, these 

clauses mean that it is not enough for a claimant to prove that the 

company’s reasoning is weak when it decides to deny benefits. To 

win the case, the claimant has to prove that the company’s reasoning is arbitrary or capricious. That is a significantly higher 

standard. 

It is time to close these loopholes. It is time to end the abuses. 

An insurance policy is only good if the insurance company actually 

compensates the consumer when there is a loss, and insurance law 

is only good if it helps to make that happen. It is time to make sure 

that the law does that. 

So let us hear what is happening in the long-term disability insurance industry. Let us hear what we might do to fix it, and let 

3 

us do what we can to make sure that insurance is good for the consumer when there is a loss. 

[The prepared statement of Chairman Baucus appears in the appendix. 

Senator Grassley? 

OPENING STATEMENT OF HON. CHUCK GRASSLEY, 

A U.S. SENATOR FROM IOWA 

Senator GRASSLEY. The reason that Congress created the Social 

Security Disability Insurance and the SSI programs is because the 

loss of wages due to illness or injury can be devastating, both emotionally and financially. 

In addition to these public programs, Congress has encouraged 

employers to provide additional protection to workers and their 

families through the ERISA legislation. 

Much of today’s testimony focuses around the alleged failure of 

ERISA to protect workers from unscrupulous practices of private 

insurance companies. But I would caution my colleagues that legislative jurisdiction over ERISA resides in the HELP Committee, not 

the Finance Committee. 

Now, I agreed to this hearing because it is based on the fact that 

private disability affects Social Security. Those with private insurance are often required to apply for Social Security, which potentially adds to the backlog of pending applications. 

Moreover, changes in private disability could be viewed by some 

as a green light for similar changes in Social Security. Any changes 

to ERISA must be carefully reviewed in terms of their impact on 

Social Security. There are both differences and similarities between 

Social Security and private disability, ranging from the definition 

of disability to the standard of judicial review. 

Whether or not all of these parallels and distinctions are entirely 

justified remains to be seen. Our goal should be to make the disability application process faster, fairer, and easier to understand. 

But given the looming insolvency of the Social Security Disability 

Trust Fund just a few years down the road, we must also be mindful of the needs to protect this vital program for future generations. 

Thank you, Mr. Chairman. 

[The prepared statement of Senator Grassley appears in the appendix.] 

The CHAIRMAN. Thank you, Senator. 

Now, I would like to introduce our witnesses. Ron Leebove is a 

certified rehabilitation counselor who has been working in vocational rehabilitation for about 30 years. 

Second, Mark DeBofsky. Mr. DeBofsky is a partner at the firm 

Daley, DeBofsky, and Bryant, a Chicago disability law and employee rights law firm. 

Next, Judge William Acker, Senior United States District Court 

Judge for the Northern District of Alabama. Appointed by President Reagan in 1982, Judge Acker has written more opinions on 

ERISA than any other district judge. Judge, thank you for being 

here. It is a real honor to have a sitting U.S. district court judge 

as one of our witnesses. Thank you very much for taking the time. 

The next witness is David Rust, Deputy Commissioner for Retirement and Disability Policy at Social Security. Thank you, Mr. Rust. 

4 

And, finally, Paul Graham, who is senior vice president and chief 

actuary at the American Council of Life Insurers. 

Gentlemen, it is our policy here to automatically include your 

statements in the record and ask each of you to summarize your 

statements for about 5 or 6 minutes, something along those lines. 

Mr. Leebove, you are first. 

STATEMENT OF RONALD LEEBOVE, CERTIFIED REHABILITATION COUNSELOR, DIPLOMATE, AMERICAN BOARD OF FORENSIC COUNSELORS, SCOTTSDALE, AZ 

Mr. LEEBOVE. Mr. Chairman, Senator Grassley, and members of 

the committee, I would like to thank you for the opportunity to be 

here today and to be able to speak before this committee. 

My name is Ron Leebove, and I am a certified rehabilitation specialist. I have been working in the field of vocational rehabilitation 

for approximately 30 years. I have maintained a private practice 

since 1989. I perform comprehensive vocational rehabilitation assessments and evaluations of patients who have disabilities with 

limitations and restrictions. 

Patients who are disabled have restrictions in their life activities, 

and that would include employment. I would like you to know that 

I have my own disabilities. I am visually impaired, and I have a 

hearing loss, with limitations and restrictions. I want to thank the 

State of Michigan and the United States of America for providing 

me education and vocational rehabilitation services. That included 

training and, ultimately, employment. 

The services that I have received have enabled me to fulfill my 

own vocational goals and, also, to be able to be successful in what 

I do. 

There are many tricks and techniques or tactics used by insurance companies to deny claims. These tactics include video surveillance of minor activities of claimants that are then blown out of 

proportion to intimidate claimants, biased medical reviews conducted by doctors paid by insurance companies, harassment of 

claimants by omitting medical records, requiring unreasonable 

turnaround times on requests for information, and threatening to 

accuse the claimant of noncompliance over unimportant matters. 

There are many other examples, which I really do not have time 

to go over. 

My written testimony discusses two specific cases. In one case, 

a nurse who has a severe psychiatric disability was denied benefits, 

even though her human resource manager advised me that Mary 

F. was unable to work with patients and that to allow her to continue working at that job would put patients at risk, as well as the 

company. 

In the other case, Jamie F. is legally blind and suffers from multiple sclerosis. She has been deemed totally disabled and unable to 

work by the Social Security Administration, which has the strictest 

conditions in the industry for identifying disability. However, the 

private long-term disability carrier continues to harass Jamie and 

has told her she is being investigated to determine whether she can 

work. 

5 

These two cases document the ruthless and inhumane treatment 

of people with disabilities by the insurance companies. That should 

not be allowed to continue. 

Private long-term group disability insurance policies are covered 

under ERISA. Unfortunately, ERISA denies due process and limits 

legal remedies. As a result, persons with disabilities do not have 

a level playing field when dealing with the insurance industry. 

Persons with disabilities should be entitled to an independent administrative review, where complete evidence may be submitted, as 

in Social Security disability adjudication. Moreover, standards of 

total disability should be uniform, not the ad hoc determinations 

private insurers make. 

Furthermore, under ERISA, the private insurers are entitled to 

operate as judge and jury, which violates our common notions of 

due process. Equally as troublesome is the issue of insurers requiring claimants to apply for Social Security disability benefits even 

if the claimant and the company know that the application will not 

be approved. Insurance contributes nothing to the cost of the Social 

Security application process. These applications cost the taxpayers 

millions and millions of dollars. 

It is clear that claimants are being treated unfairly by the private long-term disability companies. This situation should be remedied as soon as possible. 

I will be happy to answer any questions that the committee may 

have for me, and I thank you for your time. 

[The prepared statement of Mr. Leebove appears in the appendix.] 

The CHAIRMAN. Thank you, Mr. Leebove, very much. 

Mr. DeBofsky? 

STATEMENT OF MARK DEBOFSKY, ATTORNEY, 

DALEY, DEBOFSKY, AND BRYANT, CHICAGO, IL 

Mr. DEBOFSKY. Senator Baucus, Ranking Member Grassley, and 

members of the Senate Finance Committee, thank you for giving 

me the opportunity to testify at today’s hearing. 

When the Employee Retirement Income Security Act was passed 

in 1974, one of the law’s major sponsors, Senator Jacob Javits, 

hailed it as the greatest development in the life of the American 

worker since Social Security. That optimism was secured by a 

promise contained in the preamble to the statute proclaiming 

ERISA’s purpose: to provide appropriate remedies, sanctions, and 

ready access to the Federal courts. 

Yet, the story told over the past 35 years has been one revealing 

an utter betrayal of those lofty goals and an egregious absence of 

remedies, sanctions, and access to normal Federal court procedures. 

Contrary to the clearly expressed legislative intent, the courts 

have transformed ERISA into a shield that protects insurance companies from having to face the consequences of unprincipled benefit 

denials and other breaches of fiduciary duty. 

Claimants are denied a right to trial by jury, a basic constitutional right routinely available in every other type of insurance 

case and virtually all other civil litigation. In most cases, there is 

6 

not even a trial. Instead, courts conduct reviews of claim records 

assembled and shaped by self-serving insurance companies. 

Claimants are given no opportunity to cross-examine adverse 

medical or vocational experts. Routine discovery procedures, such 

as compelling answers to written interrogatories and depositions, 

are denied, and no trial is held. 

No provision of ERISA sanctions such a practice, and Supreme 

Court precedent establishes the impropriety of courts holding review proceedings rather than trials in cases such as this. 

This insidious practice has also led to courts’ willingness to overlook wholesale flouting of ERISA claim standards developed by the 

Department of Labor. Courts allow insurers to unduly delay claim 

decisions and deny benefit claimants any opportunity to rebut adverse evidence, without any adverse consequences. 

Conversely, unsophisticated claimants who fail to meet complex 

and detailed rules governing the submission of claims and appeals 

are given no leeway whatsoever and are often barred from presenting crucial evidence in court, if they are even able to gain access to judicial review. 

And even when claimants win, instead of simply ordering the 

payment of benefits when the benefit denial has been overturned, 

the routine practice is for courts to send the case back to the insurance company. Since insurance companies understand they will be 

given further opportunities to develop new reasons for denying the 

claim, there is no incentive to make an accurate decision in the 

first instance. Consequently, the practice of remands clogs the Federal court system with multiple rounds of litigation. 

Following the 1989 Supreme Court Ruling in Firestone Tire and 

Rubber Co. v. Bruch, a vast transformation of ERISA litigation 

arose. So long as particular language is written into the insurance 

policy, courts are compelled to defer to the insurance company’s determination, unless the claimant can prove the benefit denial was 

arbitrary and capricious, and not merely wrong, a concept that has 

been elevated above the goal of ensuring an accurate claim decision. As one court has remarked, the broader that discretion, the 

less solid an entitlement the employee has. 

My written testimony contains numerous examples of how this 

has played out. The reason most frequently offered for preserving 

the ERISA regime is that the current state of the law holds down 

costs and, thus, encourages the formation of employee benefit 

plans. But that rationale is hardly a justification for a system in 

which courts give more deference to insurance companies than is 

given to Federal administrative law judges adjudicating Social Security claims. 

Since employee benefits are a valuable tool utilized by employers 

to recruit and retain prized employees, it is extremely unlikely that 

employers would cease sponsoring benefit plans, nor is there a legitimate fear of markedly increased costs. 

The only available actuarial study on this issue reveals that potential cost increases resulting from the elimination of insurer discretion would lead to, at most, a modest 4-percent rise in insurance 

premiums. To analogize, both history and common sense suggest 

that most consumers would willingly pay a ticket charge of $104 

7 

to fly on an airline that has a near-perfect safety record rather 

than paying $100 to fly on an airline perceived as being less safe. 

That price is a small one to pay for the assurance of more solid 

rights to receive benefits when they are needed in times of sickness 

or injury and to have confidence that those who deserve benefits 

receive them expeditiously, while those who are not deserving are 

denied for valid, defensible reasons. 

The ways in which ERISA can be amended to bring about these 

changes are not unduly complex. One possibility would be to amend 

the definition of welfare benefits in ERISA to clarify that the purchase of insurance as a means of funding employer-sponsored disability health or life insurance excludes the resulting plan from 

ERISA all together, leaving claimants with the existing protections 

of already well-established State laws, rights, and remedies. 

Another proposal would be to amend section 502 of ERISA to 

provide that claims brought under insured plans will always be adjudicated in accordance with the same plenary standards and proceedings afforded any other civil action brought in Federal court. 

These proposed changes would restore the intent and purpose of 

the comprehensive benefit reform enacted by Congress more than 

35 years ago. More importantly, such changes can help rebuild 

public confidence in insurance companies that have for too long 

been able to hide behind legislative shields and judicial protections 

that no other industry receives. 

Thank you. 

[The prepared statement of Mr. DeBofsky appears in the appendix.] 

The CHAIRMAN. Thank you very much, Mr. DeBofsky. That was 

straightforward and very clear. Thank you. 

Judge Acker? 

STATEMENT OF HON. WILLIAM M. ACKER, JR., SENIOR U.S. 

DISTRICT COURT JUDGE, NORTHERN DISTRICT OF ALABAMA, BIRMINGHAM, AL 

Judge ACKER. It is a privilege to be able to share with you this 

morning some of the thoughts of a trial judge who has been grappling with ERISA for 28 years. 

Appointed in 1982, I sweated over ERISA and watched other 

courts sweat over it for years, until, in 1998, I wrote a law review 

articled entitled ‘‘Can the Courts Rescue ERISA?’’ That is probably 

what prompted your committee to invite me, and I appreciate it. 

A copy of the article is attached to my testimony as Exhibit A. 

Although my arguments in 1998 are now dated, my 1998 answer 

to the question, can the courts rescue ERISA, was ‘‘no,’’ and, since 

that time, I have not changed my mind. The courts have not rescued ERISA. If anything, they have dug the hole deeper. 

I am not saying that the courts, including the Supreme Court, 

have not tried to make sense of ERISA, tried to make it workable. 

But the situation is worse now than it was in 1998 and getting 

worse every day. 

I hope that the committee is not as interested in citations of authority to support my views as it is in the views themselves, developed from experience as a trial judge constantly confronted with 

ERISA under ever-changing judge-made rules. 

8 

I am assuming that—except for Chairman Baucus, whose State 

has done away with the so-called discretionary clause and thus far 

gotten by with it; Senator Stabenow, whose State has done the 

same thing; and Senator Cornyn, whose State is in the process of 

doing it, if it has not already done it, and who, as Texas attorney 

general, was sued in a case that became central to the 5–4 decision 

by the Supreme Court in Rush Prudential v. Moran—I am assuming that the other members of this group have no specialized 

knowledge of ERISA or of the effect that the so-called discretionary 

clause, first given prominence by the Supreme Court in Firestone 

v. Bruch, has had. 

The committee has already heard or will hear testimony from 

others who are my intellectual equals or my superiors, who support 

the continuation of the discretionary clause as the basis for ERISA 

benefits decision-making. 

I will spend the rest of my time telling you why the discretionary 

clause is a disaster. I call it the law of unintended consequences. 

Bruch put the fox in the henhouse when it authorized plan administrators to operate under the now universally employed discretionary clause, the clause that, except for Michigan and Montana, 

allows the plan administrator both to interpret the plan and to decide how to apply it to a particular disability claim. 

This concept is not only foreign to logic and common sense, but 

it is unworkable and expensive. I am attaching as Exhibit B a copy 

of the initial order I routinely use in ERISA benefits cases. 

A look at it from top to bottom, something I will not undertake 

now, will illustrate the complexity of court decision-making, something that only takes place after the already lengthy process of administrative review and after the claim has been denied by the 

final, final, final administrative decision-maker. 

A driving force behind the idea of granting the insurer almost 

unbridled discretion is the belief that the procedure will lessen 

costs and lessen court time spent on ERISA cases. This is the main 

argument made by the amici curiae, who supported Standard Insurance Company’s unsuccessful certiorari petition seeking to overturn the decision that confirmed Montana’s right to eliminate the 

discretionary clause. 

It is, of course, true that, in drafting legislation, Congress has 

the obligation to consider the economic impact, as well as the needs 

of society. This judge is willing to assume that Congress engaged 

in this debate before it enacted ERISA in 1974. 

The language it chose, if it had not, over time, been altered or 

obliterated by the courts, would provide for de novo consideration 

by a court of all denials of ERISA benefits. ERISA’s section 

502(a)(1)(B) straightforwardly provides that any beneficiary can 

bring a ‘‘civil action to recover benefits due him under the terms 

of his plan.’’ 

Rule 2 of the Federal Rules of Procedure provides, ‘‘There is only 

one form of action—the civil action.’’ 

The clear language of ERISA recognizes nothing less than a trial 

on the merits. This procedure contrived by the courts, now called 

judicial review, based on an examination of the administrative 

record, while giving deference to the conflicted decision-maker, simply does not fit the scheme that Congress contemplated. 

9 

I have found no empirical evidence to justify the argument that 

the cost of trial de novo would be greater than the cost of so-called 

judicial review. I only wish that I could have brought enough 

steamer trunks to hold all of the trial and appellate court opinions 

written under the Bruch regime and under the more recent case of 

MetLife v. Glenn, which only exacerbates the problem by requiring 

us to consider the inherent conflict of interest as a ‘‘factor’’ in our 

determination as to whether there has been an ‘‘abuse of discretion.’’ 

It makes one’s head swim to read the long and convoluted opinions rendered by trial and appellate courts. I am guilty. The trial 

judge, if he or she takes Bruch and Glenn seriously, starts with 

being intimidated. 

The long and the short of it is that the ‘‘independent’’ consideration of an ERISA claim contemplated by Congress, but denied by 

the courts, would save judicial resources and clients’ money. I suggest that, if Congress doubts me, it should conduct an experiment 

and say again what it said in 1974, with no possibility of its being 

misconstrued this time, that de novo trials are the appropriate procedure in these cases. 

It will find that the volume of cases and judicial opinions that 

follow will be substantially reduced. If I am proven wrong, I will 

gladly eat my words. At my age, that would be a safe bet. 

Meanwhile, unless Congress gives me help, I will continue to 

scrupulously follow my judicial superiors. 

I have not covered all my pet peeves, but I will conclude by telling the committee that ERISA jurisprudence will stay as messed 

up as it is unless Congress reworks it. 

The courts have not rescued ERISA and cannot be expected to 

do so. The most important legislative change that I implore you to 

make is to make it absolutely clear that, when Congress says civil 

action, as it said in 1974, it meant what it said—civil action, and 

not judicial review. 

Thank you for the opportunity to share these thoughts. 

[The prepared statement of Judge Acker appears in the appendix.] 

The CHAIRMAN. Thank you, Judge, very, very, very much. I appreciate that. 

Mr. Rust? 

STATEMENT OF DAVID RUST, DEPUTY COMMISSIONER FOR 

RETIREMENT AND DISABILITY POLICY, SOCIAL SECURITY 

ADMINISTRATION, BALTIMORE, MD 

Mr. RUST. Chairman Baucus, Ranking Member Grassley, Senator 

Snowe, and members of the committee, thank you for inviting me 

today to testify. I am here to discuss the scope of review of our disability claims process. 

We pay tax benefits to persons with disabling physical and mental disorders under the Social Security Disability Insurance and 

Supplemental Security Income programs. Under the Social Security 

Act, adult claimants can be found disabled only if their medical 

condition, one, prevents them from performing their previous work, 

and, two, prevents them from performing other work that exists in 

10 

the national economy, considering their age, education, and past 

work experience. 

In addition, their disability must have lasted or be expected to last for at least 1 year or result in death. In 2009, we paid $115 

billion in SSDI benefits to over 9 million Americans and over $40 

billion in Federal SSI benefits based on disability to over 6 million 

Americans. 

Our disability process consists of several stages. When we receive 

a disability claim, we generally send the claim to the State Disability Determination Service, which is responsible for developing 

medical evidence and making the initial determination of whether 

the claimant meets our definition of disability. 

If the claimant is dissatisfied with the initial decision, our regulations provide for three levels of administrative review—reconsideration by the DDS, a hearing before an administrative law judge, 

and a request for a review by our appeals counsel. 

Our administrative review process has been described by the Supreme Court as ‘‘unusually protective’’ of the claimant, as it strives 

to ensure that a person who truly needs disability benefits receives 

them. 

A claimant dissatisfied with the agency’s final decision may appeal to a Federal district court. The Federal district court considers 

two broad inquiries when reviewing our decisions: one, whether we 

have followed the correct legal standards; and, two, whether our 

decision is supported by substantial evidence of record. 

On the first inquiry, whether we have correctly applied the law, 

the court will consider issues such as whether the ALJ applied the 

correct legal standard for evaluating the claimant’s credibility or a 

treating physician’s opinion on whether our interpretation of the 

relevant statutory provision is correct. Since these are issues of 

law, the court will consider them de novo. 

The Act also provides that the agency findings of fact are conclusive as long as they are supported by substantial evidence developed during the administrative proceeding. The court does not review our findings of fact de novo but, rather, considers whether 

these findings are supported by substantial evidence. 

The Supreme Court has defined substantial evidence as, ‘‘Such 

relevant evidence as a reasonable mind might accept as adequate 

to support a conclusion,’’ and characterized it as more than a mere 

scintilla, but less than preponderance. 

The reviewing court should consider evidence that both supports 

and detracts from the ALJ’s decision. However, if the court finds 

conflicting evidence, that could allow a reasonable mind to differ; 

and, if the ALJ’s findings are one of those possible interpretations, 

then the court must affirm the ALJ’s finding of fact. 

If the court concludes there is substantial evidence supporting 

the ALJ’s finding of fact and the ALJ applied the correct legal 

standard, the court will affirm the agency’s decision. Otherwise, 

the court will remand the case for further administrative proceedings. 

In rare instances, the courts will reverse our final decision and 

find a claimant disabled. 

Mr. Chairman, before I close, I would like to note that, despite 

the surge in disability claims, we are currently on track to elimiVerDate Nov 24 2008 19:54 Nov 01, 2011 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 R:\DOCS\70781.000 TIMD
11 

nate the hearings backlog in 2013 and reduce pending initial disability claims to pre-recession levels by 2014. 

We are able to do this and continue our progress thanks to 

Congress’s continuing support, our strategy, and especially the 

hard work of our employees. Full funding of our appropriation 

under the President’s fiscal year 2011 budget request will allow us 

to take the next steps to reducing our backlog over the next several 

years. 

Thank you, and I am willing to answer any questions you may 

have. 

[The prepared statement of Mr. Rust appears in the appendix.] 

The CHAIRMAN. Thank you, Mr. Rust, very much. 

Mr. Graham? 

STATEMENT OF PAUL GRAHAM, SENIOR VICE PRESIDENT, INSURANCE REGULATION, AND CHIEF ACTUARY, AMERICAN 

COUNCIL OF LIFE INSURERS, WASHINGTON, DC 

Mr. GRAHAM. Mr. Chairman, Ranking Member Grassley, members of the committee, my name is Paul Graham. I am senior vice 

president of insurance regulation and chief actuary at the American Council of Life Insurers, or the ACLI. 

The ACLI represents more than 300 member companies that account for over 90 percent of assets and premiums in the U.S. life 

insurance and annuity industry. ACLI members also provide the 

majority of disability income insurance coverage in the United 

States. 

I appreciate the opportunity to appear before you today to discuss the important role disability income insurance plays in helping families to protect against lost income due to a prolonged illness or injury. Essentially, if an individual becomes disabled and 

is unable to work, disability income insurance provides money to 

help a family pay its ongoing bills and avoid dipping into household 

savings accumulated for college or retirement. Families can protect 

themselves by purchasing short- or long-term disability coverage or 

any combination of the two. 

More than 40 million Americans are covered by private long-term 

disability insurance policies, and insurers paid almost $9 billion in 

long-term disability claims payments in 2009 alone. Individuals 

covered by this insurance are overwhelmingly satisfied with their 

policies and the claims process. A 2008 industry survey found that 

four out of five claimants said that they are very satisfied or somewhat satisfied with their policy. 

The vast majority of the time, disability coverage is provided to 

individuals at the workplace by their employers. Employers work 

with insurers to design policies that are most appropriate for their 

workforce. Approximately 39 percent of U.S. workers in private industry are covered by short-term disability insurance, and approximately 30 percent are covered by long-term disability insurance. 

We would, obviously, like to see that number higher and believe 

that it is good public policy to encourage employers to provide this 

coverage to their employees. 

Although disability income insurance is a popular benefit in the 

voluntary workplace benefit system, limiting costs to employers is 

essential to having them provide such coverage to their workers. As 

12 

with any business decision, business owners would be disinclined 

to provide voluntary benefits if it becomes overly expensive or it exposes the business to the threat of costly litigation. 

Workers covered by disability income insurance policies in the 

workplace are protected under Federal law by ERISA. In the context of disability income insurance plans, ERISA regulations specify that a plan fiduciary, generally the insurance carrier, is required 

to act in the best interest of the plan participants and beneficiaries. 

For the protection of consumers, ERISA, additionally, sets out 

detailed and specific requirements for the fair, transparent, and 

timely handling of disability claims. These requirements address 

time frames for claim decisions, requirements for keeping claimants informed and apprised of claim actions and reasons for them, 

and the appeal rights afforded claimants whose claims are denied. 

Under these various rules, ERISA sets forth an efficient process 

for review of claims and appeals. In addition to the strong protections afforded in ERISA, States have also established requirements 

to ensure that claims are handled promptly and fairly. 

In 1990, the National Association of Insurance Commissioners 

adopted their model Unfair Claims Settlement Practices Act, which 

has since been adopted in various forms by 48 jurisdictions. Among 

other things, this act sets requirements regarding the appropriate 

disclosure of material facts about a claim, timing for a claims investigation and settlement, notice regarding why a claim may have 

been denied, as well as notice that an individual may have their 

claim reviewed by the State insurance department. 

Further, this act sets out enforcement procedures that commissioners can use to sanction companies failing to follow the law. I 

would point out that, contrary to what some might believe, the U.S. 

Supreme Court has ruled that State laws that regulate the substance of insurance coverage or are aimed at the insurance claims 

administration process are not preempted by ERISA. This provides 

a dual level of regulation of the disability claims process for those 

policies issued under ERISA. 

It is unfortunate that in some limited cases, there have been 

abuses in the marketplace. However, the current system of Federal 

and State regulations has worked well to identify problems, address insurer misconduct, and provide claimants with avenues to 

redress grievances. 

Disability income insurance provides financial protection for millions of American families that complements the safety net provided by the Social Security Disability Income program. Employers 

appreciate that, by offering this voluntary benefit, they can attract 

the best talent and provide protection for their employees at an acceptable cost. 

This system has worked very well for American families, and 

they are overwhelmingly pleased with their policies and satisfied 

with the claim process. This is, in large part, because ERISA and 

State insurance laws provide consumer protections and regulations 

that ensure that the claim process is fair and timely. 

Furthermore, the current framework of Federal and State consumer protections ensures the all-important balance in providing a 

reasonable cost of coverage and the appropriate adjudication of 

claims. 

13 

Thank you. 

[The prepared statement of Mr. Graham appears in the appendix.] 

The CHAIRMAN. Thank you, Mr. Graham. 

First, am I correct in assuming—and anybody can answer this 

question—there are really three different standards, or procedures 

and rights, where a claimant can bring a disability case? One is 

under ERISA, another is Social Security disability, and the third 

is uniform State insurer administrative practices. 

Are those all three different standards that might apply to a 

claimant? What am I missing, or am I right in my assumption? 

Mr. DEBOFSKY. Can I answer the question? 

The CHAIRMAN. Yes, certainly. You might turn your microphone 

on. 

Mr. DEBOFSKY. The Social Security system is a stand-alone system that is applicable only to claims arising under the Social Security Act. 

The CHAIRMAN. Right. 

Mr. DEBOFSKY. And there are very specific procedures, such as 

the judicial review procedure under section 405 of title 42. 

With respect to private disability insurance, individual disability 

insurance is a contract that an individual purchases directly. Those 

claims are adjudicated under normal State court proceedings. 

The ERISA claims are the claims that are arising under 

employer-provided benefits. Those claims are generally governed by 

the ERISA law. If the discretionary language is written into the 

contract and has not been overruled by State laws, such as the law 

in Montana, Michigan, Illinois, I believe Maine, as well, the de 

novo standard applies. 

The CHAIRMAN. To an otherwise ERISA claim. 

Mr. DEBOFSKY. Correct. If the language is in the contract and 

there is no State law overriding it, it will be subject to the arbitrary and capricious standard. But with respect to the de novo 

standard, depending on the circuit that you are in, there are very 

different interpretations as to how that standard is applied. 

In the majority of the 11 or 12 Federal circuits, the standard that 

is applied is still that a review proceeding is conducted by a court; 

that a judge will be reviewing the claim record and not permitting 

any testimony, no cross-examination, no trial procedures. 

In the circuit that I am from, the seventh circuit, the seventh circuit has ruled explicitly that claimants are entitled to trials, but 

that is a minority viewpoint. 

The CHAIRMAN. All right. What went wrong since 1974? When 

ERISA was written, as I hear the first three witnesses, including 

you, Judge, it sounds like ERISA was written to provide certain 

protection to consumers, and even, Judge, you quoted the phrase 

‘‘civil action’’ in the ERISA law. 

But as I hear you, it sounds like the courts—the judicial system 

has weakened those standards to the point where, basically, the 

plan administrator under ERISA is a judge and the jury and makes 

a lot of decisions, often to the detriment of the claimant. 

Judge ACKER. I think that if you allow me to maybe get my two 

cents’ worth in on that, which is maybe repetitive, I think that the 

courts and the judges, who came to grips with ERISA initially, 

14 

thought that they were going to save themselves some time and 

trouble by inventing judicial review and morphing what the Congress did into that system. 

Then along came the discretion, which took it a step further, so 

that judicial review was a new thing entirely and nobody today 

tries a de novo review unless there is no discretionary clause. 

Now, Mr. DeBofsky here has had experience, and I have had it 

as a judge, with using the MetLife v. Glenn case, where the Supreme Court has said you have to take the inherent or structural 

conflict of interest into account. 

I have allowed discovery in cases, even discretionary cases, so 

that I can know, from evidence developed, it is not in the administrative record anywhere. What, if any, influence did the conflict of 

interest that is there—it is always there, maybe in varying degrees. 

In my more lengthy remarks, I pointed out that, after MetLife v. 

Glenn, the plan administrators and the insurance companies have 

put in place procedures to blunt or disguise the depth of that conflict. 

Now, I cannot help being influenced by something that is in my 

self-interest. That is what self-interest means. They are selfinterested. Now, what do you do about that? You do about it—you 

give it to a court de novo, and that is the only way to do it. 

The CHAIRMAN. Now, let me ask, Mr. Graham, what is wrong 

with that? I can anticipate your response. It is going to be, ‘‘Well, 

it is just too costly. The employers will not provide disability insurance if there is always a de novo trial.’’ 

Mr. GRAHAM. Well, actually—— 

The CHAIRMAN. Judge Acker said ‘‘no;’’ that paradoxically, costs 

would actually be lower. They would not increase. 

Mr. GRAHAM. Well, certainly, that is his opinion, and there has 

been only one actuarial study of it, and it has shown that the costs 

are likely to go up. 

But I think, before addressing your second question, I would like 

to go back to the first question, and that is that there is an assumption here that there is something broken right now. And, if 

you look at anecdotal evidence, you will be able to find individual 

cases where you might have had some egregious behavior, and that 

is, obviously, quite unfortunate. 

But, if you take a step back and you look at sort of the raw statistics of what is happening at the insurance companies, you will 

find that, in a study that we did a couple years ago to look at— 

follow cohorts of lives through the claims adjudication process, that 

only 7 to 11 percent of claims ever are even appealed and, of those, 

less than 1 percent—I should not say of those, but by the end of 

the day, less than 1 percent ever go to court. In one of the cohorts, 

it was less than one-half of 1 percent. 

So the idea that something is structurally wrong, I think, is not 

correct. 

The CHAIRMAN. My time is expiring here. We can get back to this 

later, although I do note that, on April 15th of 2008—you are probably aware of this—the Massachusetts Division of Insurance announced that Unum, the country’s leading provider of disability insurance, has completed a mandated claims reassessment process, 

which was mandated by a settlement of a lawsuit, and the result 

15 

of that is more than 40 percent of reviewed claims reversed, in 

whole or in part, resulting in a total of $676 million in additional 

benefits for consumers in every State and the District of Columbia. 

That is 40 percent of the claims were reversed, in whole or in 

part. Now, that sounds like a pretty significant number. That 

sounds like something is not working very well. 

Mr. GRAHAM. Certainly—and there is another example of another 

carrier that had a settlement similar to that. But those two cases, 

in and of themselves, were due to what I will call bad acting at two 

companies. They were breaking the law. The laws existed already 

that took care of them. 

The CHAIRMAN. I understand. But this is the country’s leading 

provider of disability insurance at the time. That is pretty significant. 

Mr. GRAHAM. It certainly is significant and unfortunate. And we 

did reach out to the Maine Insurance Department prior to this 

hearing—— 

The CHAIRMAN. My time really has way expired. I am infringing 

upon the Senator from Maine, whom I would now like to recognize. 

Senator SNOWE. Thank you, Mr. Chairman. And to follow up on 

that line of questioning, I think it is important, because the Regulatory Settlement Agreement was not raised with respect to Unum 

and 48 other State insurance commissions regarding that settlement in 2005. 

I think it would be helpful to hear the views of those who testified, because it sounds like they are of the opinion that anything 

short of litigation will not work. Yet, we have not looked at the current system of remedies as to whether or not a number of these 

issues have been brought to the superintendents of insurance. 

For example, in Maine, they have indicated that Unum has not 

only met, but in fact exceeded, the standards of the Regulatory Settlement Agreement. 

So I think that we need to address the question of, where do the 

problems lie, and whether or not the States can address it. Our 

State, for example, in Maine, the superintendent has pulled discretionary clauses. So obviously, States have that ability to do it. 

I would like to ask you, Mr. DeBofsky, the Regulatory Settlement 

Agreement, for beginners, had a series of best practices. Was there 

anything more that should have been included in this regulatory 

settlement that was not back in 2005? 

Mr. DEBOFSKY. Senator, that is a hard question to answer, because my experience is anecdotal. I do see a lot of cases in my practice, and my experience has been that the number of cases that I 

have had against Unum has declined. But that does not mean that 

the situation has been completely cured. 

So long as we still have the discretionary clause, Unum is still 

fighting, in policies that were issued before the regulatory settlement agreement, to maintain the discretionary clause, even though 

it has been banned in my State, Illinois, as well as in your State. 

I think that there are still abuses with respect to doctors who review files for a living and are not actually examining the patient. 

I do not think it is my role or my desire to single out any particular 

company, but the system, as it exists, without a trial, is really the 

fly in the ointment. 

16 

The issue does go back to Senator Baucus’s question. Where did 

we go wrong? It is that the judges jumped from the Firestone case 

saying, we can apply this arbitrary and capricious standard to 

analogizing what they are used to with respect to how they adjudicate Social Security claims. 

Social Security claims are adjudicated in Federal court based on 

a file review, because there has been a hearing before an administrative law judge, where testimony has been taken under oath and 

cross-examination of witnesses has occurred. 

There is nothing comparable in ERISA. So the claimants not only 

are not getting that hearing before they come to court, they are not 

even given the opportunity to cross-examine the opinions that are 

being used against them, which the courts are willing to give great 

deference to. 

Senator SNOWE. Well, a couple of things come to mind, speaking 

of anecdotal. I do think, Mr. Chairman, it is important to have a 

GAO study to examine the practices in all 50 States, frankly, to see 

exactly what is the basis of the complaints in terms of those instances, how widespread, how pervasive. Secondly, how can it be 

addressed short of litigation, because it is a voluntary benefit on 

the part of the employers. I do think we should have employers as 

part of this review and understand that point, as well, in terms of 

raising the cost of the premiums and the cost of this benefit, and 

we need to address that. Third, about the superintendents of insurance, and, obviously, this is within the State purview—but what 

can they do differently? 

I was looking at this multistate examination concluded back in 

2007; it was done for Maine Bureau of Insurance, Massachusetts, 

New York State, Tennessee, and all other participating jurisdictions, most of the States, in fact, and it does not indicate that there 

is a problem in terms of claims processing. 

So I think there is an avenue in which to address those particular instances so there is redress. The question is whether or not 

we should go as far as providing private rights as an action in litigation that could add to the cost. Is there another way of addressing that problem? 

I know you cited the Milliman study, and that it found only a 

modest 4-percent rise in premiums if lawsuits were permitted for 

ERISA claims, but yet that study was of benefit changes in the 

State of California, not a sampling pervasive nationwide. So the 

proposed changes could add to the cost. So we would have to know 

a whole lot more. 

Mr. Chairman, I would like to include the Milliman study in the 

record, because it does show that there would be a significant increase in cost in disability insurance and products. 

The CHAIRMAN. Without objection. 

Senator SNOWE. Thank you. 

[The study appears in the appendix on p. 149.] 

Senator SNOWE. But with this regulatory settlement agreement, 

talking to the superintendents of insurance, they are saying that, 

in this instance, this company is meeting or exceeding the standard. 

So what is it that has to change? If the error threshold is up to 

7 percent, which is under the National Association of Insurance 

17 

Commissioners’ standard, and it is only ranging there—it ranged 

from 1 to 4 percent, well below the 7 percent. What is it that we 

can do to further address that error rate within the current system? 

Mr. DEBOFSKY. Well, the error standard, 7 percent, that is over 

100,000 claims a year, over 100,000 people who are denied the economic protection that they thought that they purchased. 

Senator SNOWE. But that is the State that could change that 

standard. Is that a better way? I am just asking, because I think 

we need to know all of that. 

Mr. DEBOFSKY. Well, while the States can be on discretionary 

clauses, given the Federal procedure that has taken its grip over 

ERISA litigation, only legislation or the courts can fix that, and the 

only court that can fix that at this point is the Supreme Court, and 

they seem uninterested in addressing this particular issue. 

Senator SNOWE. Why is it, do you think, that States, for example, 

are not banning the discretionary clause? They must recognize 

these examples. Yes? 

Judge ACKER. Speaking from my perspective as an Alabama citizen, I know that there has been an effort in Alabama to try to get 

the discretionary clause banned, as it apparently has been in 

Maine, which I was not familiar with, and the insurance industry 

has opposed it. 

If the insurance industry does not like the idea of banning the 

discretionary clause, there must be a reason, and it has fought it 

everywhere; fought it in Montana all the way to the Supreme 

Court. 

There must be a reason for the insurance industry to want to 

keep the discretionary clause, which was invented by the Supreme 

Court, not by you. And, if we could get all 50 States to adopt a nondiscretionary clause, a prohibition, that would come closer to a solution. 

But, if you have a trial de novo, and both sides, the claimant (the 

beneficiary) and the plan administrator, know it, they know it from 

the start, if you are talking about the volume of settlements, the 

percentage of settlements, the percentage of settlements would go 

down. Both sides would know they were getting ready to face the 

judge, and it would not be that long, and there would be settlements, and the costs would be less. 

Now, as I said in my remarks, I could be wrong. We will never 

know unless we try. And I thought in 1974 you did try, that is 

what I was reading, and then I was told I was wrong, and I have 

been fighting it ever since. I guess you could sense it in the tone 

of my voice, and probably in the tone of my sometimes provocative 

opinions, which the appellate courts do not always agree with. 

The CHAIRMAN. I am a little unclear. Maybe, Judge, you can help 

me out here. To what degree does ERISA preempt State courts? 

Judge ACKER. Well, in Alabama, the Supreme Court of my State 

has held that the State courts have concurrent jurisdiction over 

ERISA cases. I have forgotten the date of that case. It has been 

there for a while, and they never retreated from it. And the reason 

they have not, I think, is that all the cases filed, and the few filed 

in the State courts, are removed promptly so they never get to the 

18 

Supreme Court of Alabama, and it has not had occasion to revisit 

that question. 

Personally, I think the State court justices are just as qualified, 

if they are given some ERISA cases, and I would be glad to share 

them with them, I mean, sure. I hold myself out as knowing more 

about ERISA than a few others, but the States are entirely capable 

of doing that. 

So I do not call it anymore a preemption. I call it super-duper 

preemption. That is my descriptive term for it, because the Federal 

courts have reached out and told the State courts, ‘‘You cannot 

touch this in any shape, form, or fashion. It is ours.’’ 

Well, it just should not be ours. There is nothing in the statute, 

as it is now, that says the State courts do not have concurrent jurisdiction. They have concurrent jurisdiction over title 7. They have 

concurrent jurisdiction over the Fair Labor Standards Act. Why not 

ERISA? Because the courts have not rescued ERISA. They have 

made it worse. 

The CHAIRMAN. Why are cases in Alabama in State court removed to Federal court? What is the basis? 

Judge ACKER. Well, they are afraid. In the first place, ERISA is 

a Federal statute, and they can remove. So they knee-jerk remove. 

They are not going to stay there because, under the present regime, it is like super-duper preemption. The State court may act 

on it, and what the Alabama trial courts are doing now, in light 

of what the Federal courts—they read the Federal courts’ reports 

just like they read the Alabama Supreme Court, but they believe 

the Federal courts in this area. 

So, if the defendant does not remove it to the Federal court, the 

State judge dismisses it sua sponte, without prejudice. They have 

told me I do not have jurisdiction, and I am going to believe them, 

even though the Supreme Court of Alabama said the contrary. I am 

going to send it to the Federal court or send you there, and, of 

course, they know that, so they remove it. 

The CHAIRMAN. But going back to my question. Apart from Alabama, generally, to what degree does ERISA preempt State courts? 

Judge ACKER. It preempts all State law claims in State court, 

where there is a complaint filed. It may have some language in 

there which can be interpreted to invoke, maybe collaterally, 

maybe slightly, maybe arguably, something having to do with a 

plan, a disability plan. 

Of course, there are exceptions, but not many. And so, when 

somebody looks at that, they say, ‘‘Well, that has some ERISA in 

it.’’ If it has ERISA in it, it is removable. 

So there is no way today, I do not think in any State, to draft 

a disability claim that would include the possibility of a jury trial 

and the possibility of mental anguish recovery without it being 

promptly removed and converted automatically into an ERISA 

claim, which would eliminate those remedies. 

The CHAIRMAN. Let me ask a different question. Do you think 

that the procedures under the Social Security Disability Act are 

fair? 

Judge ACKER. I think they are, but I think you designed them 

that way. They are just entirely different. 

The CHAIRMAN. We designed ERISA, too. 

19 

Judge ACKER. They are different animals. Like Mr. DeBofsky 

said, they have no similarity. That was addressed and thought 

through, and I think you addressed and thought through this, but 

we did not believe you. We ignored you. 

As Mr. DeBofsky said, an administrative—there has been a judge 

sitting on it. There has been evidence sworn. Now, in our instance, 

where I get these ERISA benefits claims on a cold record, I have 

never seen a witness. Nobody has seen a witness. Nobody has 

cross-examined a witness. 

There is a vocational expert who says one thing and a vocational 

expert who says something else. There is a doctor who says one 

thing, there is a doctor who says something else. It is all written 

down. Some of them are treating physicians, some of them are paid 

by the insurance company. I cannot tell who is lying, but somebody 

is. 

But under the present regime, it is on my desk to decide if there 

has been an abuse of discretion—or, if there is no discretionary 

clause as there would not be in Michigan, they are on a de novo 

review—if the decision was correct in denial. Of course, if there 

was no denial, it would not be with me. I would never have to see 

it. 

The CHAIRMAN. Mr. Graham, what about the judge’s observation 

or belief that, if there was de novo review or if there was no discretionary clause, that there would be a lot of settlements and that 

would reduce a lot of costs? 

Mr. GRAHAM. Well, all I can say is, as far as I know, there has 

only really been one study into it. It is the Milliman study that you 

have put into the record here. 

I think that if you think about it just from a common-sense 

standpoint, the—take a step back. Insurers do not want to go to 

court. There is no doubt, they do not want to go to court. They 

would like to settle all the claims in a legal manner, provide people 

with the benefits that they are due. 

If there were de novo review, there is no doubt that the cost of 

discovery and any lengthy trial that may come out of it is going to 

take more time and effort than the singular review by a judge to 

go through the claims documents that already exist. 

It is sort of hard to come to any other conclusion, and I think 

that is why Milliman came to the conclusion that they did. 

So I guess that is—I do not believe that the costs would actually 

go down. And, in addressing something that the honorable Judge 

said earlier, the reason that the insurance companies have, in fact, 

fought the removal of discretionary clauses from the policies is because we believe that very thing. We believe the costs will go up 

and that we have only 30-percent penetration into the private employer marketplace at this point, and we think it is good to get that 

insurance to as many people as possible. 

We think it is good public policy, and we believe that, when Congress put the law together originally, that balance was taken into 

account in determining how the review should be established by 

the courts. 

The CHAIRMAN. Does ERISA prevent States from prohibiting discretionary clauses? 

20 

Mr. GRAHAM. Well, I guess there are court cases recently that 

would indicate that ERISA would not. The Montana case, where 

they have banned discretionary clauses, went all the way to the Supreme Court, and the Supreme Court agreed that the State had the 

right to do that. 

The CHAIRMAN. And is that partly because discretionary clauses 

are not in ERISA, but as judicial-made doctrines, so that is why? 

I am just wondering why the Supreme Court reached that conclusion. 

Mr. DEBOFSKY. Can I answer that, Senator? 

The CHAIRMAN. Yes, Mr. DeBofsky. 

Mr. DEBOFSKY. You asked earlier about what ERISA preempts 

and what ERISA does not preempt. 

The CHAIRMAN. Yes, right. 

Mr. DEBOFSKY. As Mr. Graham indicated during his testimony, 

State laws that regulate insurance are not preempted. So a discretionary clause ban has been held not to be preempted. 

If States pass laws that say policies must include specific provisions, as most States do with respect to health insurance, that is 

not preempted. But the claims that you can bring are preempted. 

The remedies that you can obtain are preempted. 

If an individual seeking disability benefits, who has been denied, 

loses their home on account of that denial, there is no claim that 

they can bring that is not preempted by ERISA. 

If an insurance company or an employer has made a misrepresentation about the nature of coverage and an individual is denied 

benefits on account of that—and I give the example of the 

Amschwand case in my written testimony—there is no claim that 

can be brought that is not preempted by ERISA. 

ERISA has huge preemptive force in this area and prevents the 

same kinds of rights, remedies, and court access that claimants 

who have private insurance would be able to access if they had a 

claim under their policy. 

The CHAIRMAN. Changing subjects here a little bit. When we 

wrote health care law, there was sort of a loose assumption that 

ERISA works okay with large group plans, that the health insurance reform was more important in the individual market and in 

the small group market. 

So I am asking you. These problems you think are very serious 

with respect to disability claims, to what degree do some of these 

problems also exist in health insurance that is also covered by 

ERISA? 

Mr. DEBOFSKY. They are even far more serious, Senator, because 

people die on account of erroneous decision-making. If a treatment 

is withheld, if somebody is told that they can only have one treatment instead of another one that might prove life-saving, if the 

wrong medication is prescribed because that is the one that is on 

the formulary, there is no remedy that those individuals have, and 

the consequence can often be death. 

Judge ACKER. I said in my written remarks, but I did not get to 

say to you, the beneficiary either exhausts himself administratively 

or exhausts himself to the point of view that he dies before he sees 

anything, and that happens all too often. 

21 

Now, Mr. Graham and the insurance industry support the discretionary clause and say that it will increase the costs to take it 

away. Now, it has not been gone very long in Michigan or Maine 

or Illinois, so we do not know what the cost effect will be. 

We can know, we could know, maybe, if all 50 States enacted it, 

but I do not think all 50 States are going to, and I think there 

needs to be some uniformity, and the only way to get it is not to 

seek it one at a time, 50 States, because, if you try it in Alabama, 

you are not going to get it. I can tell you that right now. We are 

not going to get it. But you can give it to us. 

The CHAIRMAN. I am just reminded that, in the health care legislation, the Congress did provide for external third-party review of 

health claims, and there may have been some other changes, too, 

under ERISA. 

I do not know—maybe, Mr. DeBofsky, you have some opinion 

with respect to that change. 

Mr. DEBOFSKY. I think that there is some good and there is some 

bad to that. I think that the notion of independent external review 

is always a good idea. The problem that I have seen with the 

ERISA cases that you alluded to in your opening remarks is that 

this so-called independent review is often not independent; that 

there are now organizations that have sprung up that do nothing 

but review claims for insurance companies by doctors who do not 

practice, they just make their living reviewing claims. 

The CHAIRMAN. Even under health insurance claims, in addition 

to disability claims. 

Mr. DEBOFSKY. Absolutely. There are companies that are set up 

that seem to have no purpose other than to deny a life-saving cancer treatment, and it is very unfortunate that those companies 

seem to be biased. 

If there is a means of guaranteeing true independence—as there 

is in some States that already have independent external review, 

where a State agency is the one that assigns the case for the review rather than the insurance company picking the external reviewer—it is more likely to be successful. 

Mr. GRAHAM. Mr. Chairman, could I address that for a second, 

too? 

The CHAIRMAN. Sure. 

Mr. GRAHAM. Because there is a very important difference between independent medical review and what would need to occur 

in the disability market, and that is, the medical review is really 

a medical necessity determination. It can be made by probably a 

single doctor or possibly even a nurse, depending on the particular 

claim. 

However, for the determination of disability, there are a lot of 

things that have to be involved. First, somebody has to understand 

what the vocation is, what the person’s job has been, what the 

physical demands of that job are. You need, obviously, medical evidence so you could determine medically that somebody is disabled, 

but that does not mean that they cannot do their job. 

Insurance companies have large teams of people who are looking 

at all the different aspects to determine disability, and it would be 

very difficult to put together an independent reviewer that had all 

22 

of those expertises, especially if they were not a specialty organization that only did that. 

So it would be very difficult to have that kind of reviewing requirement in disability as compared to medical insurance. 

The CHAIRMAN. I understand. But do you not think that Judge 

Acker, for example, could, by asking certain questions, by crossexamining both sides or letting attorneys cross-examine each side, 

have a pretty good sense of kind of where the truth is? 

Sure, there are a lot of decisions that are pretty complex, but district court judges have often very complex trials. Members of Congress have complex issues before them, I understand. But sometimes it is important to get an independent person who is not biased, is not influenced by one side or the other. 

Mr. GRAHAM. Well, unfortunately, it is really quite difficult to remove all bias from this entire process. A person’s own personal 

physician has some bias towards the relationship with that person. 

As has been pointed out, there is some level of conflict of interest 

of the insurer, that is, reviewing the claims. Anybody that it hires, 

obviously, there is money coming from the insurer to that person. 

We can call it independent, but there may be some level of bias. 

No matter how it is structured, it is impossible to remove all of 

the bias from the system. A claimant can, at any time, choose to 

pay a second doctor or a third doctor or a fourth doctor and bring 

more evidence to the insurance company that would be considered 

in the process of a claim review. 

There is still some bias there, but it is more information that an 

insurance company would take into account. 

So, while most of these independent reviewers are, in fact, hired 

by insurance companies and could be seen as being biased, we do 

not think it is right to have the claimant pay for that; but, if they 

choose to pay for another independent examination, they certainly 

can, and that would be taken into account in the claims adjudication. 

The CHAIRMAN. Well, I appreciate this. Mr. Rust, I wanted to 

compliment you on your efforts to reduce the backlog of Social Security disability cases. I stumbled across this study a couple, 3 

years ago when it was done, on the length of the backlog, and we 

had talked about denying justice—the whole thing about justice delayed is justice denied. 

It was just unconscionable the backlog that existed. You say now 

that you will not be able to get it down to acceptable levels until 

2013 or maybe 2014. 

I know part of this is resources that you need, but I just urge 

you to burn the midnight oil. So many people need to know what 

the decision is, and I just encourage you to work even harder at 

reducing that backlog. 

Mr. RUST. Well, I think during his confirmation hearing before 

you, Mr. Chairman, you impressed that point upon our commissioner, Mike Astrue, and he has certainly focused our attention on 

bringing those backlogs down. And we have been very successful, 

too, and we very much appreciate the support we have gotten from 

Congress in terms of the last three appropriations bills. You have 

given us the resources to do it. 

23 

The CHAIRMAN. Well, this has been kind of a disturbing hearing, 

frankly. There is clearly a huge problem here. 

I am somewhat saddened saying I tend to, on the surface, anyway, agree with your observation, Judge, that courts are going to 

move in this direction probably to lighten their load a little bit. 

Whether that is true or not, I do not know, but it could be part 

of the reason why the 1974 law has not lived up, as it sounds, to 

its intent. 

We have a lot of work ahead of us. We also have to work with 

another committee, the HELP Committee, and I very much hope 

that I will be talking to Chairman Harkin to see if there is some 

way that we can move ahead on this area. 

But this is not good, and I just very much hope that we could 

find a better solution than we now have. 

I have also received a series of materials relating to long-term insurance policies under ERISA that I would like to include in the 

printed record of this hearing. 

Without objection, they will be included. 

[The information appears in the appendix on p. 76.] 

The CHAIRMAN. I am a bit disappointed at the attendance here 

on such a big issue, but I am sure most Senators are wrapping up 

this week, because we are going to be adjourning near the end of 

this week. 

But I just thank all of you very much for taking the time to come 

here. You have worked hard to prepare your testimony. It is very 

thoughtful testimony. The answers, your comments were all very 

thoughtful, and I just deeply appreciate the time that you have 

taken to help us move maybe a step toward a solution here. 

Thank you. The hearing is adjourned. 

[Whereupon, at 11:29 a.m., the hearing was concluded.] 

(25) 

A P P E N D I X 

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