Courts Deny Specific Exclusions in Health Care Insurance Policies

PHILADELPHIA--New court decisions are putting a damper on theinsurance industry's attempts to deny coverage of experimentaltreatments by writing specific exclusions into their policies.These exclusions most often concern high-dose chemotherapy withautologous bone marrow transplantation (HDC/ABMT), said KarenL. Illuzzi Gallinari, a partner in the New York-based firm ofAnderson Kill Olick & Oshinsky.

"For example, some policies include language that lists theonly diseases for which high-dose chemotherapy is covered. Breastcancer may not be on the list," Ms. Gallinari said in a presentationbefore a meeting of the Experimental Treatments Working Groupof the National Association of Insurance Commissioners (NAIC).

Insurance companies initially won several lawsuits in which specificexclusions were used to justify denial of coverage for HDC/ABMT,she said, but new legal tactics have been developed to fight theseexclusions, resulting in several recent decisions in favor ofpatients. Ms. Gallinari pointed to at least three successful strategiescurrently being used by lawyers representing policyholders.

Lawyers may argue that policies with specific exclusions for coverageof medically necessary treatments are illegal disability-baseddistinctions. Such exclusions would thus be in violation of theAmericans with Disabilities Act (ADA). In Henderson v BodineAluminum, Inc. (June 16, 1995), the Eighth Circuit court heldthe employer liable for indirectly discriminating under ADA byinsuring its employees under such a policy.

The court held that to justify such an exclusion, an employerwould need to present risk assessment and actuarial data, or reliablemedical evidence, that the treatment (in this case HDC/ABMT forbreast cancer) would not provide any medical benefit. "Iam not aware of any such supportive data available from the insuranceindustry," Ms. Gallinari said.

In the second strategy, the lawyers argued that a specific exclusionfor HDC/ABMT for breast cancer violated a federal civil rightslaw prohibiting sexual discrimination (Linker v Blue Cross/BlueShield, July 28, 1995).

The third strategy focuses on ambiguities that may still be presentin the language used to draft exclusions. "A lawsuit [Frendreisv Blue Cross/Blue Shield of Michigan, January 11, 1995] wasrecently decided in favor of a policyholder, in part because eventhe specific exclusion was not perfectly clear," she said.

In this case, the plaintiff required coverage for HDC/peripheralstem cell support for stage IV breast cancer. To justify its denial,Blue Cross referred the court to a rider it had added to the policyto "clarify" the terms of coverage.

The court found, however, that the rider was ambiguous with respectto whether peripheral stem cell support for breast cancer wasexcluded, and that ambiguities must be resolved in favor of thepolicyholder. Further, the court questioned whether the riderwas indeed merely a "clarification" as opposed to analteration or reduction of coverage, since the original policydid not appear to exclude the treatment at issue.

The need for such courtroom battles may be obviated by state legislativeefforts, Ms. Gallinari said. "Ten states have passed variousversions of legislation requiring insurance coverage for appropriatestate-of-the-art medical treatments." These states are Florida,Georgia, Massachusetts, Minnesota, Missouri, New Hampshire, NewJersey, Rhode Island, Tennessee, and Virginia.

Collective Effort Needed

Ms. Gallinari pointed out that the lack of consistent coveragestandards is a serious concern for regulators and employers aswell as insurance companies, and she urged a centralized, collectiveeffort to help put an end to "expensive and frustrating litigationthat clogs the courts and drains patients financially and emotionally."She noted that legislative efforts vary from state to state, causingheadaches for insurance companies that operate in more than onestate.

In an effort to bring order to this situation, the NAIC has drafteda model state regulation/statute that would prevent insurancecompanies from excluding medically necessary treatments that meetcertain medical criteria. The wording of the model is currentlybeing finalized based on recently solicited public comments.

"Our hope is that the NAIC's Working Group will succeed infinalizing a viable model regulation to assist the states thathave not yet promulgated similar legislation," Ms. Gallinarisaid. Such a model would help states move quickly to pass suchlegislation. "If successful, time, valuable financial resources,and literally lives will be saved."