Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.
Can Scalia Save Employer-Provided Health Plans?
An Analysis of Metropolitan Life Insurance Co. v. Glenn
In 1974, Congress enacted the Employment Retirement Income Security Act (“ERISA”), which imposed fiduciary standards derived from private trust law on all employee benefit plan administrators, including administrators of health care reimbursement plans. Since ERISA’s inception, courts have struggled with how to deal with conflicts of interest arising when a plan administrator both determines eligibility for and pays health plan benefits. The Supreme Court’s recent decision in Metropolitan Life Insurance Co. v. Glenn (“ MetLife”) sought to clarify 19 years of confusion as to how a court should consider an ERISA plan administrator who both determines eligibility for and pays benefits. In finding that Metropolitan Life Insurance Co. (“MetLife”) abused its discretion by denying plaintiff-employee Wanda Glenn disability benefits, the Court ruled that MetLife had a conflict of interest per se, because MetLife both determined eligibility for benefits and distributed them.
Further, the Court ruled that MetLife’s conflict did not trigger a change from an abuse of discretion to a de novo standard of review. Instead, the conflict should only be considered as a factor in determining whether MetLife abused its discretion in denying benefits, and the conflict should be a factor of high significance given the circumstances surrounding Glenn’s denial of benefits.
The MetLife decision will impose increased costs on employers and insurers during a time when the favorable tax treatment of employer-provided health care plans is increasingly criticized. As opponents seek to abolish the current tax benefit and MetLife imposes additional costs on the employer, the future viability of ERISA-governed health care plans is unclear.
Part I of this Note provides an overview of ERISA and its tax guidelines for employers, and outlines preceding case law that led to the MetLife decision. Part II summarizes the MetLife decision. Part III examines the effects of the decision and argues that the Court’s totality of the circumstances test unnecessarily burdens employers and insurers by forcing them to choose between increased exposure to litigation or, in the alternative, abandonment of their cost containment structures. Further, Part III explores how the lower courts that have addressed the situation post- MetLife have looked to the dissent’s reasonableness test in reviewing discretionary determinations. Although the lower courts have followed the majority’s directive by conducting conflict analyses, in practice their decisions have been based on the application of the dissent’s reasonableness test, making the conflict analysis an exercise in judicial waste.