ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Saturday, March 26, 2016

Things We Should Talk About When We Talk About Health Care

I just find this case so tragic and frustrating that I had to share with others, because that's just how I am, I like to spread those emotions around. But I think it's important, as we continue to debate how we do health care and health insurance in this country, to really think about the outcomes of these questions. And I have a nephew who was born premature and had to spend a little time in the NICU. My nephew is now a happy, energetic, clever five-year-old who we are very grateful for (even though we don't understand how five years have managed to pass, surely that's incorrect and he was just born yesterday, no?), but this case made me think of him and remember those first few scary days when you have a baby who you can't bring home with you. And how unforgiving bureaucracy can be in the face of your mere human emotions. 

Kurma v. Starmark, Inc., No. 12-11810-DPW, a recent case out of the District of Massachusetts, introduces us to the Kurmas. Their son was born about two months premature and was immediately hospitalized after birth and remained in the intensive care unit for over two months. His hospital bills totaled more than $667,000. It seems as if it was a happy ending for the baby boy and that he eventually went home with his parents, because the case doesn't tell us otherwise, so that at least seems like good news for the Kurmas. 

The bad news was that they failed to comply perfectly with all of the formalities of their health insurance policy, and for this reason the court found it had no choice but to find that the baby boy was not covered by his father's health insurance plan and therefore the Kurmas are responsible for the $667,000 hospital bill. 

Mr. Kurma had been employed by First Tek since 2006. First Tek enrolled in the Bluesoft Group Health Benefit Plan on July 1, 2010. Mr. Kurma and his family joined in the plan as soon as it became available. His wife at the time was already pregnant, and her pregnancy care was covered under the plan. Their son was born on October 7, 2010, three months after they joined the Bluesoft plan. 

What makes this case so tragic to me is that it wasn't as if Mr. Kurma did nothing to inform his health insurance that his baby son had been born. He did, in fact. He called his health insurance's claims processor on October 14, 2010, to inform him that his son had been born the previous week. Everybody agreed that this was timely notice to the health insurance company of the baby's birth. A week later, on October 21, Mr. Kurma received a letter from an affiliate of his health insurance company referring to "Baby Boy" and requesting medical information to determine the necessity of the baby's ongoing treatment. 

Mr. Kurma had several more conversations with his health insurance company during the month of October. The parties disputed what was said in those conversations, although they agreed that Mr. Kurma wished to add his newborn son to the health insurance plan. There was disagreement as to whether or not Mr. Kurma was told that he needed to provide his HR department at work with written notice of his son's birth in order to add him to the policy. At any rate, on November 8, 2010 (more than 30 days after the baby's birth, which was the time limit Mr. Kurma had under the policy), the health insurance company sent Mr. Kurma a "Certificate of Group Coverage" that "is evidence of your coverage under this plan." The new baby was listed as the individual to whom the coverage applied and the "Date coverage began" was given as October 7, 2010, the date of the baby's birth. To be honest, I would at that point, if I were Mr. Kurma, probably have considered the baby to have been covered, as that piece of paper would have seemed self-evident to me as "evidence of...coverage." However, this piece of paper contained a trick: It claimed the "Date coverage ended" as October 6, 2010, the date before the baby's birth. According to the health insurance company, this should have been a red flag to Mr. Kurma, as that was the health insurance company's way of indicating that it had refused coverage on the baby. I'm not entirely sure why the way to do this wouldn't have been to send a letter saying "We are not covering the baby," rather than sending some weird time-travel-y message like this. It would be a good policy for all of us to just say what we mean in communications like this, don't you think? This paper, far from raising any red flag that Mr. Kurma needed to do anything further, seemed to reassure Mr. Kurma that he had done everything he needed to do. 

And, even more confusingly, not even the insurance company itself, internally, seemed to know whether or not it thought the baby was covered. On November 4, an employee noted that the baby was automatically covered for the first month of his life and then needed to be formally added to the policy. A second note on November 5 corrected that to explain that the baby needed to be immediately enrolled in order to be covered. But it seems to me that if not even the health insurance company's own employees can figure out whether or not the baby was covered, it seems ridiculous to assume that a harried new father, with a baby in intensive care and a five-year-old at home to worry about, was supposed to be able to figure it out. 

On November 29, 2010, Mr. Kurma had a conversation with his health insurance company in which he stated that he had added his new son to the plan. That night he e-mailed HR at First Tek to ask them to add the baby to the plan. That e-mail was the first written contact Mr. Kurma had had with HR. It came, as you can see, more than 30 days after the baby's birth. Which was a violation of the policy, which provided, "You notify Us and the Claims Processor of the birth . . . within 30 days," with "Us" defined as Mr. Kurma's employer, First Tek. Mr. Kurma had only informed the claims processor within 30 days. 

In December 2010, Mr. Kurma was told for the first time that the health insurance company was denying coverage for his new baby. Confused, Mr. Kurma inquired as to why and was told it was his failure to return the written enrollment forms to his HR department within 30 days of the baby's birth. Mr. Kurma called his health insurance company to complain; they were unmoved. 

Mr. Kurma's employer, however, was moved by Mr. Kurma's situation. To be honest, it seems as if First Tek knew all along that Mr. Kurma's son had been born and was in intensive care, which makes sense to me, as it is the kind of thing that employers tend to know, if you're taking time off and such. First Tek's CEO actually contacted the health insurance company on behalf of Mr. Kurma, asking for leniency: "[Mr. Kurma] has a prematurely born child who is still in hospital and in deep sorrow and was not in a right frame of mind. Is there anything you can do to make the carrier make an exception?" The carrier--who nobody disputed was well aware of the baby's existence and Mr. Kurma's desire to add him to the plan--refused to make such an exception, insisting that it could not because First Tek (the company requesting leniency) had not been properly notified. Note that that was the only basis for the health insurance company's denial, as stated in the letter it sent Mr. Kurma: "The plan required that Mr. Kurma notify [the insurance company] AND his employer, within 30 days after the infant's date of birth. [The insurance company] received notification within the required time frame, but First Tek did not." No matter, apparently, that First Tek itself requested that its notice requirement be waived and at any right apparently believed itself to have been properly notified. 

Now the insurance plan in this case contained language that added further confusion to what was going on here: It gave First Tek "full, exclusive and discretionary authority to determine all questions arising in connection with this Contract including its interpretation." Under this clause, one might think that, if First Tek considered itself to have been validly notified, then it was. Not so fast, though. The insurance plan also contained language that the insurance company "has full, discretionary and final authority for construing the terms of the plan and for making final determinations as to appeals of benefit claim determinations . . . ." So whose interpretation, First Tek's or the insurance company's, should win here, when they both have some sort of "full" and "discretionary authority"?

The court concluded that this language meant that First Tek had authority over contract interpretation, but the insurance company had authority over claim determinations under the contract. Therefore, First Tek was correct in its assertion that the baby was enrolled, because that lay within First Tek's discretion. However, First Tek could not contradict the insurance company's determination, even accepting that the baby was enrolled, that the benefits were denied. I admit I'm so confused by this determination, I read this paragraph of the decision over several times, and I'm fighting a cold myself at the moment (and worrying about what health insurance coverage I'm going to mess up should I need to see a doctor over this illness!), so if I'm reading this wrong, please let me know, but this seems contradictory. What's the point of giving First Tek "ultimate" authority over who's enrolled under the policy if the health insurance company has "ultimate" authority to ignore First Tek's "ultimate" authority and deny benefits because it doesn't think people are enrolled? The court seems to think that this is a system that makes sense, but it mostly seems to me that it's just a fancy way of obscuring the fact that First Tek really had no authority here. Which might be fine as just a straightforward matter, but this is anything but straightforward: The contract manages to strip First Tek of authority by saying the opposite, much like the weird denial of coverage the insurance company sent that actually read that it was "evidence . . . of coverage." This is like being Alice in Looking-Glass Land, frankly. 

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At any rate, as you could probably tell was coming, Mr. Kurma loses this case. What's interesting is that he presents no claim that he ever informed First Tek in any way of the birth of his son within the relevant 30-day period. I find this difficult to believe, personally, and I don't know how there couldn't have been something he could have used to argue that he gave First Tek some notice, especially given the evidence that even First Tek's CEO tried to get coverage for the baby. But the court says there was no dispute that there had been no notice "of any kind," not even oral, and so Mr. Kurma failed under the terms of the policy. 

Mr. Kurma argued that First Tek clearly wished the baby to be enrolled and tried to intercede with the insurance company on Mr. Kurma's behalf. The court's reaction to this is unimpressed: the plan says what the plan says, and First Tek's desire not to follow the plan doesn't mean anything. (Of course, presumably First Tek didn't have a whole lot of opportunity to negotiate the terms of the plan in the first place.) Mr. Kurma also tries to argue estoppel, which fails because, again, the words of the plan were clear, and Mr. Kurma failed to follow them, so he can't argue estoppel. Likewise, there was no duty on the insurance company's part to explain to Mr. Kurma what steps he had to take to insure his son, and there was no bad faith on the insurance company's part in failing to do so. 

So, the end result is that the Kurma family is now over $667,000 in debt, as a result of having sought to save their son's life. This case just kills me. I know what the plan said, but I am a trained lawyer who found the words being said to Mr. Kurma confusing; I am bewildered by how it could be reasonable to expect Mr. Kurma to wade through all of this during what was doubtless the most stressful and emotionally exhausting time of his life. Think of how challenging you find it to deal with bureaucracy under ideal circumstances; imagine having to do it while your tiny infant son is fighting for his life in intensive care. And having to do it under circumstances where you're given dense pages of legalese, no assistance to walk through that legalese, and documents that say one thing while meaning the opposite. 

I know that insurance companies have a lot to deal with, too. And I know this insurance company didn't want to pay $667,000 in medical bills. I know this insurance company wanted to make sure it makes people jump through a few hoops first to make sure they really deserve the health care. But I just find this outcome in this case tragically absurd in a way that makes me despair for how we're dealing with health care in this country: Nobody disputed that the health insurance company was well aware Mr. Kurma's wife was pregnant and would presumably soon be having a child; nobody disputed that the health insurance company was well aware Mr. Kurma's son had been born and was hospitalized; nobody disputed that the health insurance company indicated to Mr. Kurma that it was evaluating the necessity of his son's medical treatment; nobody disputed that the health insurance company even sent "evidence of . . . coverage" to Mr. Kurma. And still the health insurance company didn't have to cover the baby, because of one missed hoop that the company it pertained to sought to waive entirely. 

Maybe your view is that Mr. Kurma should have been more on top of things. But I just think this seems like an incredibly harsh case. 

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Peter Gulia, an adjunct professor at Temple University Beasley School of Law, sent me this as a follow-up and I add it to the text here with his permission because I think it's a valuable contribution. 

Your great essay on Kurma v. Starmark, Inc. paints a striking story.  But let me give you a way to reconsider what happened.

The health plan is a “self-funded” health plan that is not health insurance.  The employer pays the claims from the employer’s assets.  (The employer likely has a stop-loss insurance contract that pays the employer, not the plan or any participant, if claims exceed specified measures.)

Starmark is not an insurer; it provides services to the employer, which also is the health plan’s sponsor, administrator, and named fiduciary.

In any moment during Mr. Kurma’s difficulties, the employer, acting as the plan’s administrator, could have instructed the processor to treat Kurma’s newborn as regularly enrolled.  Doing so would make the employer responsible to pay the mother’s and newborn’s medical expenses.

(Even if the employer asked:  “Is there anything [the processor] can do to make the carrier make an exception?”, this likely referred to trying to persuade the stop-loss insurer to provide more coverage than its contract promised.)

If one analyzes this case under the common law of contracts, one might classify it as a duty-to-read case.  The reported facts suggest the participant did not read the plan, and also did not read, at least not carefully, its summary plan description.

That Mr. Kurma suffered a loss because he didn’t sufficiently understand his employee-benefit plan’s conditions is harsh.  But it’s not because Starmark failed to perform its service agreement.  And it’s not because Starmark sought to avoid an expense it never would bear.

http://lawprofessors.typepad.com/contractsprof_blog/2016/03/things-we-should-talk-about-when-we-talk-about-health-care.html

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Comments

This outcome seems just plain wrong. I share your frustration. First, in insurance law, the insured party usually is entitled to rely on reasonable expectations of coverage, absent very clear notice. Second, the requirement to notify the employer's HR's department is a mere condition, not a duty of performance. Moreover, it is a condition that appears to be for the benefit of the employer, not the insurance company, and the employer seems to have waived it. I don't know Massachusetts law and I don't know whether this case was well litigated. I don't suppose the plaintiffs have the resources for an appeal, but it sounds like an appropriate occasion for one.

Posted by: Kate O'Neill | Mar 27, 2016 10:48:53 AM

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