Recently I was working with a client who had an appeal from an individual seeking to get additional benefits under a health plan. In a nutshell, the issue was an annual limit on visits and the participant wanted the plan to pay for extra visits to a therapist. The client was stuck between applying the plan language and wanting to grant the exception. For plan administrators and sponsors, this type of situation is all too common and can cause real problems.
First, plans should always be administered in accordance with the plan terms. A limit is a limit and, absent a plan amendment that changes the limit, it should be followed to the letter. But applying plan provisions necessarily requires application of plan terms which requires interpretation which is within the discretion of the plan administrator. By its nature, interpretation has a certain component of subjectivity that allows for the plan administrator to grant appeals based on its interpretation of plan language. However, this does not give the administrator the ability to disregard the terms and apply anything other than their plain meaning. In other words, the plan says what it says. If you want to have exceptions, consider a plan amendment.
Second, plans have to follow rules. There are regulations, IRS Code sections and statutes that dictate how things should be done. Granting things like extra benefits, hardship withdrawals and special enrollment rights might be specifically prohibited depending on the circumstances and the dictates of applicable law. Third, there is always the risk of discrimination. Once an exception is granted, what happens for the next request and the request after that? Who gets the special privilege and why? Can someone denied the exception claim some type of discriminatory act by the administrator? Exceptions can create a very slippery slope.
That said if the ultimate purpose of a benefit plan is to provide benefits to participants, plan administrators and sponsors should look at possible exceptions as a means of tweaking and improving their plan to really provide benefits. A proposed exception might suggest a logical amendment to a plan that makes the exception the new rule. It is also possible that a requested exception can actually be justified because of ambiguities or silence in the actual plan itself. But remember that exceptions are just that, they are not the rule.
The point being that in reality, plan administrators and plan sponsors are regularly asked to consider exceptions and have to make a decision on whether or not to grant those exceptions. Its up to the administrator to make a determination. Denying exceptions is one possible answer, but so is granting limited exceptions based on a diligent review of the options. In either event, before making any determination on a request for an exception from a participant some type of flexibility in interpretation of the plan, administrators and sponsors should consider these three things: plan language, rules and regulations, and possible future impact of the decision. Having that consultation with plan counsel is probably a good idea to show due diligence.
So when it comes to requested exceptions, plans dont have to consider them but can. Its all in how you approach it.
Keith R. McMurdy is a partner with Fox Rothschild focusing on labor and employment issues; he can be reached at firstname.lastname@example.org or (212) 878-7919.
The information in this legal alert is for educational purposes only and should not be taken as specific legal advice.
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