A case we finally resolved in 2008 for the late Mr. Robert Noia and his wife illustrates how navigating health insurance coverage in the United States can sometimes be a treacherous affair, and how access to services can be difficult even if you have two or three forms of coverage.  Mr. Noia, a long-time employee of Consolidated Edison (“Con Ed”), had coverage under Con Ed’s retiree health plan.  He was also enrolled as a dependent in the health insurance plan offered to his wife through her employment.  Unlike Mr. Noia, his wife was actively working at the time of the dispute.  Her coverage, provided through a union, was called the Division 1181 A.T.U. – New York Welfare Fund.  Because he had received Social Security disability benefits for more than two years, Mr. Noia also had health insurance coverage through Medicare (Parts A and B).

Despite this apparent abundance of coverage, Mr. Noia nonetheless found himself in a situation where all three plans refused to pay benefits starting in late 2003.  Each plan claimed that it was secondary to one or more of the other plans, and refused to pay until the “primary” plan had paid first.  This vicious circle of “please, after you” was not broken until Mr. Noia, with our assistance, commenced a lawsuit in the federal district court for the Eastern District of New York.  After the parties filed a set of cross-motions, Judge John Gleeson ruled that the Division 1181 Plan was primary for all claims prior to June, 2006.  Noia v. Division 1181 A.T.U. – New York Welfare Fund, 2007 U.S. Dist. LEXIS 68324 (E.D.N.Y., Sep. 14, 2007).  A copy of the full decision in its original format, as issued by the court, is available for download at the bottom of this page.  The court’s decision paved the way for settlement of all Mr. Noia’s remaining claims incurred after June, 2006, as well as his claims for attorneys’ fees.

The “Primary Payer”/

Coordination of Benefits Problem

Medicare’s “secondary payer” rule provides that where a person has coverage both through Medicare and through a healthcare plan available because of his own (or another person’s) active employment (the “active employment plan”), Medicare is “secondary.”  Active employment refers to a person who is employed and still working, as opposed to an employee who may be in retirement (or some other non-working) status.  Claims must first be submitted to and paid in the usual manner by the active employment plan, after which any unpaid amounts may be submitted to Medicare.  An active employment plan is prohibited by law from making Medicare primary, and, indeed, can suffer substantial penalties if it seeks to do so.  Where, however, additional coverage is provided as a consequence of an individual’s status as a retiree (a “retiree plan”), Medicare generally acts as the primary payer, and the retiree plan pays second.  Theoretically, in Mr. Noia’s case, this meant that the Division 1181 plan (which was provided to him through his wife’s active employment) should pay first, Medicare second, and the Con Ed retiree plan last.

The wrinkle, however, was that both the Division 1181 and Con Ed plans contained a “coordination of benefits” (or “COB”) provision.  COB provisions are designed to address the situation where multiple health plans provide coverage for the same individual.  The provisions seek to order the sequence of payments among the available plans, typically, through a series of rules.  One common rule is that a plan covering an individual through his own employment should pay before a plan that covers him as a dependent.  Another common rule is that a plan should always pay as secondary to another plan which has no coordination rules whatsoever. Or a plan may state that if the covered individual is a child who has coverage as a dependent through each parent, the coverage provided to the parent whose birth-month is earlier in the year will be primary.  COB provisions typically recite a series of such rules, and plans sift through the available rules until one is located which dictates an answer as to which plan pays first.  This can get quite complicated when each plan has its own COB rules, much like a game of “Rock, Paper, Scissors.”  State regulators have attempted to standardize COB provisions so as to ensure that in a coordination dispute between two insurance plans, the plans’ respective COB provisions will agree as to which plan is primary and which is secondary.  Unfortunately, when plans are self-funded and not subject to state regulation, as was the case with both the Con Ed and Division 1181 plans, those state regulations do no apply. 

In Mr. Noia’s case, each plan interpreted its own COB provision as making the other plan primary.  Late in 2003, Division 1181 began to argue that Con Edison should be primary and, shortly thereafter, refused to cover the very expensive drugs he needed to treat his primary pulmonary hypertension, a fatal disease, until Con Edison first made payment.  Division 1181 argued that the following rule from its COB provision made Con Edison the primary payer:

If you are covered as an employee under one health plan and are covered as a dependent under the other health plan, then the health plan covering you as an employee is primary.    

Because Mr. Noia was covered as an “employee” under the Con Edison plan and as a dependent under the Division 1181 plan, this rule, according to Division 1181, required Con Edison to pay first.  He was Medicare eligible and – as a consequence of Medicare’s rules – the Division 1181 plan was secondary to Medicare because his wife was still actively employed.  Consequently, Division 1181 would follow Con Edison, and Medicare would pay thereafter.

Relying on its own COB provision, however, Con Edison argued that the Division 1181 plan was primary:

Dependent Rule: If a plan covers you as an employee, member, subscriber, or retiree, then that plan is primary. . . .

There is a special exception to the dependent rule. If you are Medicare-eligible and Medicare is secondary to the plan covering you as a dependent, and Medicare is primary to the plan covering you as a retiree, then the order of benefits is reversed. In this case, the plan covering you as a retiree is secondary and the plan covering you as a dependent is primary.

Although the Con Edison plan covered him as a retiree, Mr. Noia’s coverage was governed by the exception.  According to Con Edison, its COB provision and Medicare’s Secondary Payer rule (which permitted a retiree plan to pay secondary to Medicare) thus required the Division 1181 plan to pay first, followed by Medicare, with Con Edison paying last.

Mr. Noia’s Self-Help Efforts

Mr. Noia first contacted each of the plans in an effort to seek an agreement between the two as to which plan should pay first.  After this failed, Mr. Noia sought assistance and mediation, successively, from the New York Attorney General’s Health Care Bureau, his Congressman, and the Department of Health and Human Services.  Throughout these talks, each plan steadfastly clung to its position that the other was “primary,” oblivious to the fact that even though both clearly provided coverage, their refusal to reach an agreement left Mr. Noia without any coverage whatsoever.  Indeed, because Medicare’s Secondary Payer rule required claims to first be processed and paid by the Division 1181 plan, Mr. Noia could not even get Medicare to pay for his medical care.

During this time period, in June, 2006, Division 1181 amended its plan to include a rule in the COB provision which more specifically addressed Mr. Noia’s scenario and again selected Con Edison as the primary payer.  The amended COB provision stated:

If you are covered as an employee, a former employee or retiree under one health plan and are covered as a dependent under the other health plan, the health plan covering you based on your employment is primary and the plan covering you as a dependent is secondary.

The Lawsuit

Since Con Edison and Division 1181 could not reach a voluntary agreement, and since none of the government entities – such as the Attorney General, Mr. Noia’s Congressman, and HSS – had authority to force them to do so, Mr. Noia came to our office for legal assistance.  We filed a lawsuit in the Eastern District of New York, naming both the Con Edison and the Division 1181 plans as defendants.  The lawsuit sought payment of all Mr. Noia’s unpaid medical claims, a declaration as to the order of payment as between Con Edison and Division 1181, and an award of attorneys’ fees.  When mediation proved unsuccessful, Judge Gleeson ordered the parties to file cross-motions setting forth their respective positions.

On September 14, 2007, Judge Gleeson held that for the period prior to Division 1181’s amendment of its plan in June, 2006, the plans’ respective COB provisions were not really in conflict, when reasonably interpreted, and that both provisions required the Division 1181 plan to pay first, with the effect that Medicare and Con Edison, respectively, would pay thereafter.  Judge Gleeson found that Division 1181, by reciting the COB rule regarding “employees,” had ignored another rule in its COB provision which specifically addressed retired employees:  “If you are covered as an active employee or the dependent of an active employee and you are also covered as a retired/laid-off employee or the dependent of a retired/laid-off employee under another health plan, the health plan covering you as an active employee is primary.”  The latter provision, he concluded, would designate the Division 1181 plan as primary.

Judge Gleeson used principles of federal common law to reach a decision.  Reviewing the COB provision in its entirety, Judge Gleeson held that it was unreasonable for Division 1181 to rely on the rule regarding employees (“Rule 2”), when there was a more specific rule regarding retired employees (“Rule 3”):

[I]n interpreting a text with an applicable generic clause and a conflicting applicable specific clause, one generally applies the specific clause. See Aramony v. United Way of Am., 254 F.3d 403, 414 (2d Cir. 2001) (“[E]ven if the general language of Article I, considered in isolation, is broad enough to manifest a generalized intent to replace benefit reductions caused by future limitations imposed by the Internal Revenue Code, Article I’s broad language is limited by the specific operative language of Article V, which provides only for the replacement of benefit reductions caused by specific existing tax provisions.”); Restatement (Second) of Contracts § 203(c) (1981) (“[S]pecific terms and exact terms are given greater weight than general language . . . .”). Suppose the posted rules of our courthouse billiards room read: “1. No clerks. 2. When more than two players are waiting, former clerks of Judge Weinstein play first.”  No one reading those rules could doubt that former clerks of Judge Weinstein had the right to play.

In addition, under the Division 1181 Fund’s reading, there would be no role for Rule 3 to play in the SPD because the term “employee” of Rule 2 would cover every possible application of the term “retired/laid-off employee” of Rule 3.  It is arbitrary to include rules in a plan and then not apply them. “[U]nder federal common law ‘a contract should be interpreted as to give meaning to all of its terms -- presuming that every provision was intended to accomplish some purpose, and that none are deemed superfluous.’”

Thus, given the language of the Division 1181 COB provision prior to the amendment in June, 2006, Judge Gleeson concluded that both the Con Edison and Division 1181 plans should be interpreted to require that the Division 1181 plan pay first.

Judge Gleeson ordered further briefing with regard to claims after Division 1181’s plan amendment of June, 2006.  With that amendment, the Division 1181 plan seemed clearly to make Con Ed primary, so that the two COB provisions were irreconcilably in conflict – each choosing the other plan to pay first.  While Judge Gleeson concluded that governing law permitted him to adopt a coordination rule which would break the impasse, the selection of such a rule – from among several identified by the parties – should be guided by relevant public policy considerations.  He ordered “supplementary briefing on the policies that would be advanced and frustrated by adoption of each rule.”  We were pleased that the parties then came together to negotiate a resolution, which settled the claims asserted by Mr. Noia in his lawsuit (i.e., for past benefits, a designated payment order for future benefits, and attorneys’ fees) and ended the lawsuit, so that he would not have to endure further litigation at a time when his illness was quite advanced.

Conclusion

The Noia case underscores how the business of insurance is frequently at cross-purposes with the ostensible purpose of that insurance.  Mr. Noia had done his best to ensure he had adequate health care insurance for his medical needs.  He had not just one insurance plan, but two private plans, as well as Medicare.  Yet, despite this abundance of coverage, he could not get his claims paid because his health plans were too busy scrambling to avoid expenses and to shift costs to other plans.

Many health plans interpret COB and other policy provisions – such as those limiting coverage to “medically necessary” treatment, those barring payment above the “usual and customary rates,” or those excluding coverage for “experimental” or “investigational” treatments – in an overly aggressive manner, so that plan participants may be shocked at how little coverage is actually available to them.  Unfortunately, because a health plan’s financial self-interest increases with the cost of treatment, plan participants are more likely to confront such overreaching when they are most in need of coverage, as in Mr. Noia’s case, where a serious, chronic illness required access to expensive medications and frequent access to medical care.

On the bright side, Noia also demonstrates that the courts can provide justice in such situations.  Not only did Judge Gleeson overturn a health plan’s unreasonable interpretation of its COB provision, he concluded that even if both plans, reasonably interpreted, had mutually repugnant COB provisions, the law – guided by policy considerations – would create a rule to break the impasse.