The Affordable Care Act's Medical Loss Ratio Rule's Application to Medicare Advantage and Prescription Drug Plans

One of the key components of the new Affordable Care Act is its medical loss ratio rule. The rule seeks to control health care costs by requiring medical insurers who don't spend at least 80 to 85 percent of their premium earnings on health care — rather than on marketing and administrative expenses — to rebate the excess non-health care spending to their consumers. (Sometimes those consumers will be individuals; other times, they will be employers who purchased health care for their employees.) Last year, insurers rebated about $1.2 billion under the rule. We have blogged about the rule several times, including here and here. As this article by Ben Goad explains, the feds have proposed a regulation, currently being reviewed by the Office of Management and Budget's Office of Information and Regulatory Affairs, that will extend the rule to prescription drug plans and Medicare Advantage plans beginning next January.

An astonishing arbitration decision in an age of astonishing arbitration decisions

Why do courts enforce mandatory arbitration clauses? Because the contracting parties agreed to them, the courts tell us.

Not this time. A Florida intermediate appellate court held earlier this month that an arbitration clause was enforceable in a wrongful death suit against a rehabilitation center even though Jessie Holloway, the 92-year-old woman who signed the arbitration agreement, "could not possibly have understood what she was signing." Specifically:

When she entered the facility, she executed a standard resident admission and financial agreement and a separate arbitration agreement. At the time, she was 92 years old and had a fourth-grade education. She could not spell well and often had to sound out words while reading. She had memory problems and was increasingly confused.

Even though the court had no trouble accepting the trial court's finding that Ms. Holloway couldn't have understood the agreement, the court nonetheless held that "[f]or better or worse, her limited abilities are not a basis to prevent the enforceability of this contract," because "[o]ur modern economy simply could not function if a 'meeting of the minds' required individualized understanding of all aspects of the typical standardized contract."

The court is thus abandoning any pretense that arbitration must be based on consent and a knowing waiver of rights. Instead, this rule permits forced arbitration to be imposed unilaterally by the more sophisticated party to any contract. And if "[t]he agreements are sufficiently complex that many able-bodied adults would not fully understand the agreements," well, so much the better for the company imposing the terms, and so much the worse for the elderly patient who forgot to bring her lawyer when she checked in to the rehab center.

The case is Spring Lake v. Holloway, decided by Florida's Second District Court of Appeals.

$35 million fraud settlement in Florida

From a DOJ press release: "Lender Processing Services Inc. (LPS), a publicly traded mortgage servicing company based in Jacksonville, Fla., has agreed to pay $35 million in criminal penalties and forfeiture to address its participation in a six-year scheme to prepare and file more than 1 million fraudulently signed and notarized mortgage-related documents with property recorders’ offices throughout the United States."

The CEO of a subsudiary, DocX, pled guilty to criminal charges. You can read the whole release here.

Now that the OCC Head is Not a Bank Lobbyist, Republicans Want a Commission There Too

by Jeff Sovern

The Office of the Comptroller of the Currency is a bank regulator that, like the CFPB, has a single head rather than a commission structure and gets its funding outside the appropriations process.  I have pointed out before two things about this: first, that unlike with the CFPB, Republicans have been happy to confirm OCC directors. And second, that the OCC has historically been very protective of banks, even going to court to block the New York Attorney General from trying to enforce fair lending laws against the banks the OCC regulates, and declaring state anti-predatory lending laws inapplicable to the OCC's clients--subjects of the OCC's regulation.  But now that the OCC has a new leader appointed by the president, Thomas Curry, Senator Mike Crapo, the ranking Republican on the Senate Finance Committee, has called for a commission structure for the OCC too. 

What is behind this shift?  It could be an honestly-held view.  But another possibility is that commissions suddenly look more attractive than directors when a banking agency is not led by a former bank lobbyist, as was true for much of the Bush administration.  Another possibility is that pushing for a commission undermines arguments that the Republicans are leaving the OCC alone while tackling the CFPB structure because they want to protect banks rather than consumers.  And unlike with the CFPB, Republicans won't have to make good on the argument for years by blocking confirmation of the head of the OCC because they just confirmed a new one last year. 

And as for the merits of commission versus director, the SEC is a commission. How's that working out?

The relationship, if any, between economic deregulation and consumer benefit

by Brian Wolfman

We have posted before on the large decline in airfares in light of the 1978 Airline Deregulation Act. (See also the chart to the right, and click on it to enlarge.)

But, in this piece, David Lazarus questions whether economic deregulation ever brings consumers lasting benefit. He worries about the just-announced U.S. Airways-American merger:

Experts were buzzing after the announcement with dire warnings of higher fares, more crowded planes and fewer options for travelers — and they're probably right. Once the merger is completed, four airlines — American, United, Delta and Southwest — will control about 75% of the U.S. market. . . . Richard H.K. Vietor, a professor of business administration at Harvard Business School, said there have been numerous examples of deregulation bringing prices down for varying amounts of time. In the case of airlines, he said, we've enjoyed decades of lower fares since the industry was deregulated in 1978. "That's the good thing," Vietor said. "The bad thing is that, as we've seen, competition erodes and you get back to oligopolies." The U.S. airline industry now resembles how it looked in the 1930s, he said, with just a handful of carriers controlling most air traffic. As a result, the primary benefit of deregulation — lower fares — could disappear as fewer airlines duke it out for business.

I'm not sure Lazarus has it right here. Nearly 35 years of lower airfares through deregulation shouldn't be sneezed at. Perhaps with greater regulation service would be better and those dreaded "fees" would be gone. (Although note the chart, which shows that fees are a quite small percentage of the cost of flying.) And perhaps the coming oligopoly will be so bad that the many years of deregulation will be deemed not worth it. Maybe additional economic regulation will be needed. Maybe regulators or Congress should take a skeptical view of future air industry mergers. But the chart is no lie. Stay tuned.

Senator Warren Gets Tough With Regulators, Says Banks Should Not Be Seen as "Too Big for Trial"

by Brian Wolfman

This article by the Consumerist's Chris Morran explains that, in her first Senate Banking Committee hearing, senior Massachusetts Senator Elizabeth Warren "grilled a panel of regulators on their tendency to settle with law-breaking banks rather than go to trial. ... Sen. Warren explained her stance that if banks reap billions of profits while breaking the law, then later settle and pay that settlement money out of those same profits, 'they don’t have much incentive to follow the law.' She also pointed out that when a trial is avoided, so is all the important, possibly revealing testimony that would have come out of that trial." The hearing witnesses included the FDIC chair, the SEC chair, the Comptroller of the Currency, and Richard Cordray, the director of the new Consumer Financial Protection Bureau, Senator Warren's brain child.

To view the entire hearing go here, and then click on the small link about a third of the way down on the left that says "view archive webcast." Senator Warren's questioning begins at about 1 hour and 52 minutes. The senator presiding over the hearing introduced her as "Senator Warden." It's definitely worth watching. She can't get any regulator to say when his or her agency had last taken a Wall Street firm to trial, and she notes that assistant U.S. attorneys around the country are "squeezing" ordinary citizens in court every day.

Forced arbitration of claim on behalf of non-party to arbitration agreement

In light of the steady march toward maximum judicial enforcement of arbitration clauses, perhaps nothing should surprise us anymore, but a recent federal district court decision caught the eyes of several of us here at CL&P Blog. This decision, from the Southern District of Ohio, ruled that a dispute was subject to arbitration even though one of the plaintiff's claims involved the right of a party that never agreed to arbitration -- specifically, the United States, whose interest in the case arose under the False Claims Act -- to recover for having been defrauded. (The FCA permits individuals who uncover a fruad against the federal government to sue in the government's name for the wrongdoing, with a share of the recovery going to the plaintiff and a share to the government. See 31 USC § 3730.)

Subjecting the rights of a non-party (a sovereign party at that) to an arbitration agreement to which it wasn't a party would seem problematic, but the court had no problem with it, explaining that statutory rights are often subject to arbitration and that "[w]hile the FCA action was necessarily 'brought in the name of the Government,' it still represents a claim belonging to the Plaintiffs themselves." (citation omitted)

If there is any limiting principle possible in this context, it could be that the U.S. had the opportunity to intervene in the lawsuit but did not, as the court also pointed out. But the government's right to recover is at stake whether or not it intervenes -- the FCA provides that even without intervening, the U.S. still recovers the lion's share of the amount by which it was defrauded.

The full decision can be accessed here.

 

CFPB Wants to Hear From Students

Here's the email they sent out:

 

Good afternoon,  

We need your help to figure out what’s the deal with financial products marketed to students, like debit cards and checking accounts.  

Email us at CFPB_StudentsFedReg@cfpb.gov by March 18 to tell us about any aspect of your experience.  

That may include:

• Signing up for the card or account
• Fees you’re charged to use the card or account
• Which cards or accounts you chose, whether your school recommended them or you
       shopped around

College is a time when many of us signed up for our first bank account. Often schools set up agreements with financial companies to offer cards and accounts to their students. Today, many students can add banking services on to their student ID card to pay for everything from a load of laundry to shopping online.  

While credit card issuers publicly disclose these types of agreements with schools, we know less about these arrangements when it comes to other student products, like student checking accounts and debit cards to access student loan funds. We want to see if students are getting a good deal and what schools can do to help them through the process.  

That’s why we need your help. We want to hear about your experience with financial products designed for college students.  

We’ll use your comments to work with school officials on ways they can make sure that schools and students are getting off on the right foot when it comes to managing their money during college. We’ll also publish a summary for everyone who contributes and let you know how you can continue to help make sure the market is working for everyone.  

Tell us your two cents today. 
 

Thank you,

Rohit Chopra
Student Loan Ombudsman 

 P.S. -- Learn more about our work for students.

Carolyn Dessin Paper: Arbitrability and Vulnerability

Carolyn Dessin of Akron has written Arbitrability and Vulnerability, 21 Temple Political & Civil Rights Law Review, 349 (2012).  Here's the abstract:

Arbitration is cool. Everybody's doing it. In the eighty-five years since the passage of the Federal Arbitration Act, that seems to be the prevailing sentiment. Recent decades have seen the meteoric rise of arbitration as a form of alternative dispute resolution. Arbitration is widely regarded as a less expensive, more expeditious alternative to litigation.

Courts frequently note that federal policy clearly favors arbitration. No judicial enthusiasm for arbitration seems more complete than that evidenced in the jurisprudence of the United States Supreme Court.

Along with the rise of arbitration, however, there has also been a rise in the amount of criticism of arbitration. Some suggest that nothing short of a complete overhaul of the Federal Arbitration Act will correct problems that have arisen in the arbitration context.

One of the main focuses of the criticism has been against mandatory binding pre-dispute arbitration in the consumer context. The United States has condoned this species of arbitration in an unparalled fashion, and some suggest that our country has gone too far. One of the major concerns in this area is that it is unlikely that a consumer can knowingly agree to arbitrate claims that have not yet arisen.

This Article focuses on mandatory pre-dispute arbitration agreements in the context of a situation involving a vulnerable party. As the
discussion will illustrate, there is no precise definition of vulnerability. Although most of the cases discussed herein involve older vulnerable adults, the concerns in this area frequently arise in other contexts as well. Thus, the author suggests that the discomfort exhibited by courts in dealing with these cases may suggest a broader discomfort with mandatory pre-dispute arbitration agreements in the consumer context.

 

 

States Join Separation-of-Powers Suit Against the CFPB

Remember the Big Spring suit? That's the case challenging various provisions of the Dodd-Frank Wall St. reform law, including the legality of the Consumer Financial Protection Bureau, on separation-of-powers grounds. That suit includes, but is by no means limited to, a challenge to Richard Cordray's appointment as CFPB director as an impermissible (non-)recess appointment. The Blog of the Legal Times reports today that eight states -- Alabama, Georgia, Kansas, Montana, Nebraska, Ohio, Texas, and West Virginia -- have joined the suit as plaintiffs. (Michigan, Oklahoma and South Carolina were already plaintiffs.) It is amazing the degree to which some states are waging legal war with the Obama Administration.