The State of New York Insurance Department has recently withdrawn its circular letters that provided that "Discretionary Clauses" that are permitted under ERISA are an abusive marketing practice because they do not disclose the level of judicial review that will be employed
by a federal court for determinations of coverage by such Plans, i.e., arbitrary and capricious.

http://www.ins.state.ny.us/cl06_08.htm

http://www.ins.state.ny.us/cl06_14.htm

NYSID has indicated that they will issue proposed rules to the same effect.

First, if a practice is truly abusive, why couldn't NYSID enforce its broad statutory enforcement rights to do so. Second, if it is a disclosure issue, isn't it possible for the industry to solve this issue by including broad disclosures in the sales and benefit plan materials? Third, if the Department finds that they are unfair is this a finding that the ERISA framework for judicial review is unfair? Is there a distinction between such a position and external review statutes, which have been upheld. In essence, both regulations require ERISA plans to waive a procedural right under ERISA. I intend to draft in the near future a separate post on the ERISA preemption issue exclusively as well as a broader national survey of recent discretionary clause activity.

For a contrary review, see the link to the August 2004 edition of the National Academy for State Health Policy issue brief.

http://www.statecoverage.net/pdf/issuebrief804.pdf